When setting up a company in Hong Kong, many investors hear the terms ”offshore company” and “local company”. These are not two different legal entity types, they describe different tax positions and business substance situations of a Hong Kong company.
Hong Kong follows a territorial source principle of taxation. This means that only profits arising in or derived from Hong Kong are generally subject to Hong Kong Profits Tax. Profits sourced outside Hong Kong may generally not be taxable in Hong Kong.
A local company usually refers to a Hong Kong company that operates in Hong Kong. Its business activities, management, contract execution, or service delivery are connected with Hong Kong, so its profits are more likely to be regarded as Hong Kong-sourced and subject to Hong Kong Profits Tax.
An offshore company is not a separate company type in Hong Kong. It usually refers to a Hong Kong company whose profits are considered to be derived from outside Hong Kong. In other words, the company is incorporated in Hong Kong, but its customers, contracts, services, trading activities, or profit-generating operations are mainly outside Hong Kong.
This is why “offshore” in Hong Kong is generally a tax concept, not a registration category.
The main issue is not where the company is registered, but where the profits are generated. Hong Kong tax authorities will usually look at the real business facts, such as:
If the profit-generating activities happen in Hong Kong, the profits are more likely to be taxable in Hong Kong. If they take place outside Hong Kong, the company may be in a better position to support an offshore profits claim.
Many people misunderstand the term “offshore company”. You do not register a special offshore company in Hong Kong. You first register a normal Hong Kong company, and then its tax treatment depends on its actual business operations and profit source.
Hong Kong Tannet Group was founded in HK in 1999, now is in its sixth five-year development plan stage, and setting the upcoming two five-year plans. Over the past 28 years, HK Tannet Group has experienced significant growth and development, serves a diverse client base of over 100,000 customers from more than 130 countries. Tannet has been always devoted to providing with business solutions for investors all across the world. If you have any further inquiries, feel free to contact Shanghai Tannet at 0086-18101649652, email to tianyinong@tannet-group.com, or visit our website https://tannet-group.net/.