Is my income liable to profit tax in Hong Kong?

Centre O ACCOUNTING & AUDITING

The territorial concept of taxation in Hong Kong recognises that a Hong Kong business may generate profits from different geographical sources. Only profits sourced in Hong Kong may be subject to profits tax (15% on assessable profit). Profits sourced outside Hong Kong are possibly not taxable.

However the distinction between onshore and offshore profits is often an issue disputable between taxpayers and the tax authority in Hong Kong, the Inland Revenue Department (“IRD”). As there are no comprehensive definitive legal rules in this area, courts in Hong Kong have given the following general case law guidelines over the years:

Kinds of Profits

Location of source

Service Profit

Where services are performed

Manufacturing Profit

Where manufacturing activities are

conducted

Trading Profit

Where sale and purchase contracts are

effected

Profits from sale of (or rental income

from) land and building

Where the land and building situate

Interest Profit

Where the deposit or loan is first made

available to the borrower

 

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