Offshore 0% Tax Claim

Key Takeaways

• A Hong Kong offshore company lets you tap into international business opportunities, with profits generated exclusively outside the region.
• For those companies that earn profits outside of Hong Kong, they can benefit from 0% offshore tax claim.
• An offshore foreign company in Hong Kong is more advantageous than in Singapore, with no nationality restrictions for directors and easy access to Mainland China.
• It follows the same process as an onshore company, with tax status determined based on profit location at the end of the financial year.

Hong Kong may not be the largest city globally, but it consistently welcomes foreign investors and aspiring entrepreneurs looking to establish an offshore company and enjoy the Offshore 0% Tax Claim status. In 2020, PwC and the World Bank ranked Hong Kong as having the second most business-friendly tax system in the world, trailing only Bahrain. Discover the significant advantages this vibrant city offers to entrepreneurs from around the globe for setting up an offshore company. Besides, InvestHK also promotes the city as Asia’s business launch pad in Eastern Euorpe and Middle East in 2025. Hong Kong is the premier gateway for businesses to expand into the Mainland China and the Asia-Pacific region.
      

What is a Hong Kong offshore 0% tax claim company?

An offshore company is incorporated in a tax haven jurisdiction and generally doesn’t engage in physical operations where it’s registered. Instead, its main business activities take place overseas. In the context of Hong Kong, an offshore company is defined as one that has no profit-generating activities within the Hong Kong city and qualifies for full corporate offshore tax exemption. Explore how establishing an offshore company in Hong Kong can provide significant tax benefits for your business.

Hong Kong offshore company tax benefits

Taxation policies in Hong Kong are firmly grounded in the territorial source principle, which states that only income physically generated within Hong Kong is taxable in Hong Kong. 

When determining the source of your company’s income, HK’s tax departmentnt would focus on the following points: 

1. What operations generate the profits for your business, and where are they conducted?
2. Consider the locations where key business decisions are made, as these factors play a crucial role in shaping the company’s success.

If a company answers “outside of Hong Kong*” to both questions, HK’s Tax Department will grant it offshore status, making it eligible for 0% Offshore Tax Claim (OTC), that is, corporate tax exemption in Hong Kong.

*For tax purposes, business operations conducted in China are classified as offshore. This is an unique advantages for HK companies looking to optimize their tax benefits.

While the territorial source principle seems simple, there could be ambiguity that is easily overlooked. For instance, signing just one contract during a brief visit to Hong Kong can be considered conducting business operations within the city.

Business owners should carefully structure their operations in the following ways:

Business Activities	– No services provided within Hong Kong – No products sold within Hong Kong – No customers or clients based in Hong Kong – No suppliers located in Hong Kong – No contracts signed in Hong Kong
Physical Presence	– No physical office or place of business in Hong Kong – No warehousing facilities in Hong Kong – No employees or staff residing in Hong Kong
Operational Infrastructure	– No web hosting or servers located in Hong Kong
Directors’ Residency	– Directors do not stay or live in Hong Kong for 60 days or more per year

Hong Kong offshore company advantages: a comparison with Singapore

Hong Kong is certainly not the only pick for offshore company formation. But, it is certainly stands out as one that is the most tax efficient and welcome destinations for foreign business owners. Let’s explore how Hong Kong compares to Singapore in terms of regulatory and economic landscapes.

	Hong Kong	Singapore
Tax Rate	– 8.25% for the first HKD 2 million profit – 16.5% thereafter	– 17% for all profits
Goods and Services Tax	0%	0%
Capital Gains Tax	0%	0%
Tax on foreign income	Not taxable (0%)	Not taxable, but only if not remitted to Singapore.
Benefits for foreign owners	– No restrictions on foreign ownership – No requirement for a local director – 40 established DTAs	– At least one local resident director required for all Singaporean companies – Extensive DTA network, but is still expanding
Economic benefits	– “One Countries, Two Systems” grants HK high degree of autonomy from mainland China – Robust legal system based on English common law makes HK a global business hub – Agreements like the Closer Economic Partnership Arrangement (CEPA) between Hong Kong and mainland China eliminate tariffs and provide favorable conditions for Hong Kong-based companies	– Independent city-state – Not connected to larger regional initiatives

How to open an offshore company in Hong Kong?

There is no need ot determine whether your will be classified as onshore or offshore, this decision is made later. This is why the procedures for establishing both types of companies are identical!

Company owners can only claim Offshore Tax Status at your company’s financial year end. So, what do you need to do on your end to prove your eligibility for the Offshore claim application? Let’s dive into the requirements!

Required Documents for Offshore Tax Claims

The Offshore Tax Status really depends on clear, factual evidence and physical documents that show where your profits are being generated. It is based on the matters of fact! Grasping this concept is very important for staying compliant and unlocking the best tax advantages for your business!

Company owners should keep a full record of the following documents to support the Offshore Status: 

• Contracts and Agreements, proving negotiations and executions of contracts took place outside Hong Kong. This includes signed agreements, terms of service, and any contractual correspondence indicating offshore activities.
• Financial Records, such as Invoices, receipts, and bank statements. These should trace the flow of funds related to business activities conducted outside Hong Kong. 
• Outsourcing Documentation, such as contracts with third-party service providers located outside Hong Kong. This demonstrates that certain business functions are performed offshore. 
• Economic Substance Records, including information about employees working outside Hong Kong, office leases for premises located abroad, operational expenses that establish the company’s economic presence outside Hong Kong

Though it’s a huge benefit, offshore status is not eternal. By the end of each financial year, you will have to prove again to the tax department that your company has generated no profits in Hong Kong. Thus, maintaining offshore status is an ongoing project once you begin operations. It is also required to submit an Audited Financial Report prepared by a HKCPA.

However, as long as you can back your Offshore Tax status with clear records, there’s no reason you can’t benefit from this policy aimed at assisting entrepreneurs globally.

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Frequently Asked Questions