OFFSHORE & ONSHORE COMPANIES IN HONG KONG

Hong Kong is a busy city with tall skyscrapers, a major free trade port, and a global financial hub. It follows the Common Law system, which protects private property and ensures fair legal processes.

Hong Kong has one of the most business-friendly economies in the world. Its tax system is simple, with low corporate tax rates (8.25% or 16.5%). There are no taxes on capital gains, dividends, sales, or customs duties.

However, Hong Kong companies can have two different fiscal statuses:

1. Offshore Status (0% Tax)

Hong Kong uses a territorial tax system, meaning companies doing business outside Hong Kong may qualify for 0% tax.

Conditions for Offshore Status:

• No customers or suppliers in Hong Kong
• Business operations happen outside Hong Kong
• No office or employees in Hong Kong
• Contracts and invoices should not involve Hong Kong
• No goods entering Hong Kong

The Inland Revenue Department (IRD) will review documents before approving offshore status. Even if approved, the company must still:

• Keep proper accounts
• Submit audit reports
• File tax returns in other countries where it operates

Important Notes:

• The IRD may check records 2-3 years later to confirm offshore status.
• If the company starts doing business in Hong Kong, the offshore status can be canceled.
• Then IRD are becoming stricter, so proper accounting is essential.

2. Onshore Status (Profits Tax Applies)

If a company does business in Hong Kong, it is considered onshore and must be subject to profits tax.

Tax Rates for Onshore Companies:

• First HKD 2 million profit: 8.25% (reduced rate for SMEs)
• Profit above HKD 2 million: 16.5%
• HKD 20,000 tax reduction automatically applied

This two-tier tax system helps small and medium businesses save money.

Which One is Better?

• Offshore: Best for businesses operating outside Hong Kong (0% tax).
• Onshore: Best for businesses in Hong Kong (low tax rates).

Conclusion

Hong Kong offers great tax benefits for both offshore and onshore companies. Choosing the right status depends on where your business operates. Proper accounting and legal compliance are key to avoiding problems with the IRD.

If you need help setting up a company in Hong Kong, consult Centre O to ensure you meet all requirements!

For further information, please contact us.

You may want to read: HONG KONG: OFFSHORE TAX REPORTING RULES