Hong Kong Offshore Profits Tax Claim Services
How Primasia Can Help With Your Offshore Profits Tax Claim
Primasia’s accounting and tax team works with companies of all sizes, from startups to multnational groups to structure, file, and defend offshorprofits tax claims with the IRD.
Offshore claim Viability Audit:
Reviewing your business model and advising whether a claim is supportable
Documentation review:
Ensuring your records meet the IRD’s evidentiary requirements
Profits tax return preparation:
Filing the claim correctly as part of your annual return
IRD enquiry management:
Handling correspondence with the IRD on your behalf
Advance ruling applications:
Where appropriate, securing certainty before you file
Every case is assessed based on its own unique standpoint. We provide clear, honest advice, including cases where a claim may be difficult to support.
Hong Kong Profits Tax Claim Guide
What makes the Hong Kong Offshore Profits Tax Claim Unique?
Hong Kong’s territorial tax system is one of the most business-friendly in the world. For companies that earn the majority or all their profits outside Hong Kong, it can mean paying zero profits tax on that income. Below we explain exactly how a Hong Kong offshore profits tax claim works, who qualifies, and how we navigate the process with the Inland Revenue Department (IRD).
What Is Hong Kong’s Territorial Tax System?
Unlike most countries, Hong Kong does not tax its residents on worldwide income. Instead, Hong Kong applies a territorial basis of taxation, only profits that arise in or are derived from Hong Kong are subject to profits tax.
This means that if your company carries out its profit-generating activities outside Hong Kong, negotiating contracts overseas, delivering services abroad, manufacturing in other countries, those profits may be entirely exempt from Hong Kong profits tax.
For international businesses, particularly those using Hong Kong as a regional hub or holding company jurisdiction, this creates a significant and legitimate tax advantage.
Hong Kong profits tax rates are already low, 8.25% on the first HK$2 million of assessable profits and 16.5% thereafter for corporations. However, for those qualifying for Offshore Profits Tax Claim, the effective rate can be 0%.
How Does A Hong Kong Offshore Profits Tax Claim Work?
When a company files its annual profits tax return with the IRD, it can declare a portion, or the entirety of its income as offshore income. This is an offshore profits tax claim. If the claim is accepted by the IRD, the relevant income is excluded from the profits tax assessment.
The offshore profits claim does not happen automatically. It must be actively claimed each year as part of the profits tax return, supported by sufficient documentation, and it is subject to review by the IRD.
Who Can Make an Offshore Profits Claim?
Any company registered in Hong Kong and filing a profits tax return can make an offshore claim: there is no restriction based on company size, industry, or nationality of shareholders. However, the claim must be based on genuine facts.
The 3-Condition Test: What the IRD Looks At
The Hong Kong IRD applies a three-part test to determine whether a company’s profits are subject to profits tax:
- The person must carry on a trade, profession, or business in Hong Kong.
- The profits must arise from that trade, profession, or business.
- The profits must arise in or be derived from Hong Kong.
It is the third condition that determines whether income is onshore (taxable) or offshore (exempt). If profits do not arise in or derive from Hong Kong, they fall outside the scope of profits tax, provided a successful offshore claim is made.
The IRD’s official guidance on this is set out in Departmental Interpretation and Practice Note No. 21 (DIPN 21), which provides a detailed framework for how the source of profits is determined across different business types.
Industry-Specific Rules: How the IRD Decides
The IRD does not apply a single universal rule. Source of profits is determined differently depending on how your company makes money:
| Business Type | How the IRD Determines Source of Profits |
| Trading | Where contracts are negotiated, concluded, and executed, where employees are located |
| Services | Where the services are physically performed |
| Manufacturing | Where the manufacturing process takes place |
| Agency / Commission | Where the agent’s profit-generating activities occur |
In each case, the IRD looks at the totality of facts, there is no simple formula. This is why detailed, well-organised documentation is essential to a successful claim.
How to File an Offshore Profits Claim: Step by Step
Step 1: Separate Your Income
Before filing, divide your company’s income into two categories:
- Onshore income: profits from activities carried out in Hong Kong (taxable)
- Offshore income: profits from activities carried out outside Hong Kong (claimable as exempt)
This separation must be supportable with documentation, contracts, invoices, correspondence, employee records, and management records showing where activities took place.
Step 2: File the Profits Tax Return
When completing the annual profits tax return, declare the offshore income in Part 10. The accompanying tax computation should also clearly state:
- The amount being claimed as offshore
- The rationale for why that income qualifies as offshore
Keep the explanation clear and factual. Vague or unsupported claims will trigger more extensive IRD scrutiny.
Step 3: Respond to the IRD Enquiry Letter
Within 6 to 8 weeks of filing, the IRD will typically issue an enquiry letter requesting supporting documentation and a detailed explanation of the company’s operations, contracts, and profit-generating activities.
This is standard procedure, not a sign that the claim is being rejected. However, the quality of your response at this stage is critical. The IRD may issue multiple follow-up enquiries depending on the complexity of the case.
Step 4: Await the IRD’s Decision
Once the IRD is satisfied it has received sufficient information, the assessor will decide whether to approve or deny the offshore claim.
If approved:
- The claimed income is excluded from your profits tax assessment
- The approval typically carries a 3-year validity period, meaning the IRD is unlikely to re-examine the same offshore income during that period
- You must still file an offshore claim each subsequent year, approval is not indefinite
If denied:
- The income becomes subject to profits tax at the standard rate
- The company can object to the assessment or seek legal advice
Advance Ruling: Getting Certainty Before You File
If you want confirmation before filing (particularly useful for significant transactions or new business structures) you can apply for an advance ruling from the IRD.
An advance ruling is a written statement from the IRD confirming how they will treat a specific transaction for tax purposes. It provides certainty for tax planning.
Advance ruling fees for offshore claims:
- Application fee: HK$45,000 (covers up to 23 hours of IRD staff time)
- Additional hourly fee: HK$1,730–HK$2,650 for hours beyond the 23-hour threshold
Advance rulings are most appropriate for complex multinational structures or high-value transactions where the tax stakes justify the cost.
Common Mistakes to Avoid
1. Insufficient documentation
The most frequent reason offshore claims are challenged or denied. Maintain clear records of where every profit-generating activity occurs, signed contracts, related correspondence, meeting records, staff locations.
2. Mixing onshore and offshore activities without proper apportionment
If your company conducts both HK-source and offshore activities, you must apportion income fairly. Attempting to claim all income as offshore when some is clearly HK-source will undermine the entire claim.
3. Filing a claim without professional support
The offshore claim process involves legal interpretation of facts under DIPN 21. Errors in how activities are characterised or documented can be costly to correct.
4. Ignoring the annual renewal
A prior approved claim does not automatically carry forward. You must actively claim offshore status each year in the profits tax return.
Offshore Claims for Middle East UAE-Based Businesses Expanding to Hong Kong
For businesses relocating from the UAE to Hong Kong, or using Hong Kong as an international holding or trading hub, the offshore profits claim is often highly relevant.
If your company:
- Sells goods to customers in Asia, the Middle East, or Europe but negotiates and executes contracts outside Hong Kong
- Provides services to overseas clients from offices outside Hong Kong
- Operates manufacturing facilities in mainland China, Southeast Asia, or elsewhere
…then a significant portion, or all of your profits may qualify as offshore under Hong Kong tax law.
Many companies from the UAE establish Hong Kong entities precisely because of the combination of Hong Kong’s credibility as a financial centre and the potential for legitimate offshore tax treatment on non-HK-source profits.A prior approved claim does not automatically carry forward. You must actively claim offshore status each year in the profits tax return.
Calculate Your Potential Saving Using Our Profits Tax Claim Calculator
Hong Kong Profits Tax Claim Calculator
Two-tier profits tax with full claims modelling offshore income, capital allowances, R&D deductions and more.
Under the territorial source principle, only profits arising in or derived from Hong Kong are chargeable to profits tax. You may claim an exemption for profits genuinely arising from offshore activities, subject to IRD scrutiny.
Capital allowances replace accounting depreciation with tax-allowable deductions. The initial allowance is 60% of qualifying asset cost in the year of purchase; the annual allowance applies to the reducing pool value at the prescribed rate.
Type A R&D expenditure paid to approved local research institutions qualifies for a 300% deduction on the first HK$2,000,000 and 200% on the balance. Type B (other qualifying R&D) is deductible at 100%.
Interest on money borrowed and used in the production of assessable profits is deductible under s.16(1)(a) of the Inland Revenue Ordinance, subject to specific conditions relating to the nature of the lender and the borrowing arrangement.
Unrelieved losses from prior years may be carried forward indefinitely and set against current year profits. Charitable donations to approved charities are deductible up to 35% of assessable profits.
| Item | Amount (HKD) |
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Our team specialises in offshore income structuring, capital allowance reviews, R&D claim eligibility and group loss planning. Book a free consultation to find out how much further you can reduce your liability.
Teresa Tam
Executive Director
Stella Shiu
Head of Company Secretarial
Samantha Tse
Accounting Manager
Clare Lam
Assistant Company Secretarial Manager
Takky Chan
Assistant Accounting Manager
Pauline Siu
Payroll Supervisor