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South China Business Journal
CHINA BRIEFING
Offshore Status of Hong Kong Companies
By: Dezan Shira & Associates
Hong Kong is often seen as a favorable business location, the income is sourced from abroad, then the company
due to its low tax rates, easier access to the Asian market, will not be liable for tax in Hong Kong. Generally, there
as well as a relatively stress-free establishment procedure. The are two common types of tests to determine a company’s
region’s stable political environment and excellent finance and offshore status:
banking services also provide investors with a better business
environment. Moreover, there are no exchange controls in 1. Contract Effected Test
Hong Kong. A Hong Kong company may do business anywhere
in the world and there is no requirement for the Directors and The contract effected test is used for determining the
Shareholders to be residents in Hong Kong. The last benefit taxability of the income accruing to the taxpayer from trading
leads us to the consideration of the region’s stance on the transactions. The important factor here is whether or not
offshore status of Hong Kong companies. There is no offshore the contract of purchase or sale is made in Hong Kong. This
status regulation in Hong Kong per se. includes negotiation, conclusion and execution of the terms of
the contract. The following factors should also be taken into
A company in Hong Kong can be established without consideration:
substance. This means that the business operation can be
run in name only with no office or staff and can be operated • How were the goods shipped?
remotely. Under the current practices if no income is • How were the sales solicited and orders processed?
sourced from the Hong Kong company, meaning that all • How were the goods procured and stored?
4
CHINA BRIEFING
Offshore Status of Hong Kong Companies
By: Dezan Shira & Associates
Hong Kong is often seen as a favorable business location, the income is sourced from abroad, then the company
due to its low tax rates, easier access to the Asian market, will not be liable for tax in Hong Kong. Generally, there
as well as a relatively stress-free establishment procedure. The are two common types of tests to determine a company’s
region’s stable political environment and excellent finance and offshore status:
banking services also provide investors with a better business
environment. Moreover, there are no exchange controls in 1. Contract Effected Test
Hong Kong. A Hong Kong company may do business anywhere
in the world and there is no requirement for the Directors and The contract effected test is used for determining the
Shareholders to be residents in Hong Kong. The last benefit taxability of the income accruing to the taxpayer from trading
leads us to the consideration of the region’s stance on the transactions. The important factor here is whether or not
offshore status of Hong Kong companies. There is no offshore the contract of purchase or sale is made in Hong Kong. This
status regulation in Hong Kong per se. includes negotiation, conclusion and execution of the terms of
the contract. The following factors should also be taken into
A company in Hong Kong can be established without consideration:
substance. This means that the business operation can be
run in name only with no office or staff and can be operated • How were the goods shipped?
remotely. Under the current practices if no income is • How were the sales solicited and orders processed?
sourced from the Hong Kong company, meaning that all • How were the goods procured and stored?
4
