Page 7 - SCBJ-201507
P. 7
July 2015
• How was financing arranged? It is common for the tax authority to wait 2-3 years before
• How was the payment made? questioning companies regarding their offshore status. At that
point the company should prepare for a review of their books
2. Operations Test starting from incorporation. Obtaining an offshore status was
quite popular up to five years ago, but now the tax authority is
The operations test is for cases other than trading and money becoming quite strict.
lending (manufacturing income and passive income). For
commission income, when applying for tax exemptions, one Documentary evidences including but not limited to the
should take the following questions into consideration: following documents are critical to the success of the claim:
• What is the originating cause of the income? • Organization chart with full details of the company’s
• Did the originating cause take place in Hong Kong? establishments in Hong Kong and overseas which should include
• What has been done to earn profits and where was it done? the location and size of the office, the number of employees and
their respective names, post titles, duties and remuneration
Essentially enterprises should be aware of the following needs packages.
when applying for offshore status: • Travelling schedule and passport of the directors and the
persons who are involved in the business of the Hong Kong
• No operations office in Hong Kong company.
• No staff hired and working in Hong Kong • A detailed description of the businesses carried out by the
• No customers/client from Hong Kong company in order to earn income. For each of the activities
• No suppliers from Hong Kong identified, the company should specify the name of the
• Income contract not negotiated or concluded in Hong Kong responsible person and the place where such activity was
• Goods not entering Hong Kong performed.
• Services agreements or sales/purchases invoices should avoid • With regard to the income, especially high-income, the investor
involving any Hong Kong parties needs to provide the following documents:
• The actual operations take place outside Hong Kong o Correspondence of negotiation with the customer and suppliers
(email, fax etc.,)
Once these basic requirements are met, the tax authority o Distribution agreement or master sales agreement should be
will check the supporting documents and decide whether the provided if any
company should pay tax or not. However, once the exemption o The purchase/sales order, sales confirmation, shipping
is granted the company should prepare annual accounting and documents and invoice of sales and purchase
audit reports, as well as tax returns in the jurisdictions where it o Relevant banking documents
operates outside of Hong Kong.
Since its establishment in 1992, Dezan Shira & Associates has been To schedule a free consultation on how your business can benefit
guiding foreign clients through South China and the rest of Asia’s from the latest regulatory changes in South China and other regions,
complex regulatory environment and assisting them with all aspects please contact Mr. Fabian Knopf at +86 186 8248 2506 or email us
of legal, accounting, tax, internal control, HR, payroll and audit at guangzhou@dezshira.com. Further information about our firm,
matters. As one of the most experienced and longest established please visit: www.dezshira.com.
practices in the Pearl River Delta with over 70 professionals well
versed in practical China knowledge, we are your reliable partner
for business expansion in this region and beyond.
5
• How was financing arranged? It is common for the tax authority to wait 2-3 years before
• How was the payment made? questioning companies regarding their offshore status. At that
point the company should prepare for a review of their books
2. Operations Test starting from incorporation. Obtaining an offshore status was
quite popular up to five years ago, but now the tax authority is
The operations test is for cases other than trading and money becoming quite strict.
lending (manufacturing income and passive income). For
commission income, when applying for tax exemptions, one Documentary evidences including but not limited to the
should take the following questions into consideration: following documents are critical to the success of the claim:
• What is the originating cause of the income? • Organization chart with full details of the company’s
• Did the originating cause take place in Hong Kong? establishments in Hong Kong and overseas which should include
• What has been done to earn profits and where was it done? the location and size of the office, the number of employees and
their respective names, post titles, duties and remuneration
Essentially enterprises should be aware of the following needs packages.
when applying for offshore status: • Travelling schedule and passport of the directors and the
persons who are involved in the business of the Hong Kong
• No operations office in Hong Kong company.
• No staff hired and working in Hong Kong • A detailed description of the businesses carried out by the
• No customers/client from Hong Kong company in order to earn income. For each of the activities
• No suppliers from Hong Kong identified, the company should specify the name of the
• Income contract not negotiated or concluded in Hong Kong responsible person and the place where such activity was
• Goods not entering Hong Kong performed.
• Services agreements or sales/purchases invoices should avoid • With regard to the income, especially high-income, the investor
involving any Hong Kong parties needs to provide the following documents:
• The actual operations take place outside Hong Kong o Correspondence of negotiation with the customer and suppliers
(email, fax etc.,)
Once these basic requirements are met, the tax authority o Distribution agreement or master sales agreement should be
will check the supporting documents and decide whether the provided if any
company should pay tax or not. However, once the exemption o The purchase/sales order, sales confirmation, shipping
is granted the company should prepare annual accounting and documents and invoice of sales and purchase
audit reports, as well as tax returns in the jurisdictions where it o Relevant banking documents
operates outside of Hong Kong.
Since its establishment in 1992, Dezan Shira & Associates has been To schedule a free consultation on how your business can benefit
guiding foreign clients through South China and the rest of Asia’s from the latest regulatory changes in South China and other regions,
complex regulatory environment and assisting them with all aspects please contact Mr. Fabian Knopf at +86 186 8248 2506 or email us
of legal, accounting, tax, internal control, HR, payroll and audit at guangzhou@dezshira.com. Further information about our firm,
matters. As one of the most experienced and longest established please visit: www.dezshira.com.
practices in the Pearl River Delta with over 70 professionals well
versed in practical China knowledge, we are your reliable partner
for business expansion in this region and beyond.
5
