International Tax
For international businesses with operations in or through Hong Kong, proper tax planning and advice are highly recommended. It has to be noticed here that Hong Kong currently has about 43 double taxation agreements (‘DTAs’) effectively in place. At the same time, Hong Kong is actively negotiating the DTAs with over 14 other countries/territories.
Moreover, Tax Information Exchange Agreement with the United States, Denmark, the Faroe Islands, Iceland, Norway, Greenland and Sweden are now in force. Following the above, it is apparent that Hong Kong has opened its door for exchange of information provisions and hence identification of tax risks and exposures has become a necessity.
We can provide tax advice on various tax issues in the area of international tax advisory including but not limited to the following:
Global Tax Compliance
Similarly, we can prepare and file corporate/individual tax returns and tax computations to meet statutory requirements:
- Record keeping of company employees
- Filing of Employer’s Returns
- Acting as the representatives to handle matters related to profits tax and individual tax, for and on behalf of clients
- Preparing and filing Profits Tax Returns and Individual Tax Returns
- Managing and advising the tax-related obligations in Hong Kong, Mainland China and worldwide
- Lodging objections in writing against the tax assessments issued by the Hong Kong Inland Revenue Department (IRD)
- Preparing responses to the enquiry letters issued by the IRD on any tax issue
- Proposing group holding structure for the purpose of achieving tax efficiency in relevant tax jurisdictions
- Advising on double income tax treaties, (automatic) exchange of tax information / common reporting standard (CRS) and permanent establishment issues
- Advising on cross border transactions and related global transfer pricing issues
- Advising on remuneration package for executives and top management for achieving tax efficiency
- Preparation of tax equalisation policy and calculations
- Assisting with governmental tax policies
- Reviewing relevant tax case law
Application for Certificate of Resident Status
A Certificate of Resident Status (“CoR”) is a document issued by the IRD to Hong Kong tax residents (both individuals and corporations) as a proof of their tax resident status. Usually, the CoR is used for the purpose of claiming tax benefits granted under DTAs between Hong Kong and the foreign tax jurisdictions, such as reduction of withholding tax rates on dividend income, interest income and royalty income as well as corporate income tax exemption/relief on profits from operation of ships, aircraft and land transport vehicles in international traffic.
It is usually not straight forward for obtaining a CoR from the IRD, in particular for a corporation. The IRD usually looks at a lot of factors when determining whether to issue a CoR to an applicant. In general, the more management & control functions as well as substance being exercised/maintained by a corporation in Hong Kong, the higher the chance the corporation can obtain a CoR from the IRD.
Our Hong Kong tax professionals can provide advice on how to strengthen the chance of obtaining the CoR from the IRD and assist with the application for the CoR with the IRD, including handling the IRD’s enquiries. In particular, apart from completing the application forms, we can help the applicants to provide additional favourable information and supporting documents as well as legal grounds and arguments, if necessary, to the IRD in order to enhance the chance of obtaining the CoR from the IRD.
For more information, please read our certificate of residence article.
International Tax FAQ
Hong Kong tax for resident
Hong Kong adopts a territorial basis of taxation. All individuals, whether a resident or non-resident of Hong Kong, are subject to Hong Kong Tax on Hong Kong sourced income.
Hong Kong tax for non-resident
Hong Kong adopts a territorial basis of taxation. All individuals, whether a resident or non-resident of Hong Kong, are subject to Hong Kong Tax on Hong Kong sourced income.
Hong Kong tax resident
An individual is regarded as a Hong Kong tax resident if he/she (a) ordinarily resides in Hong Kong, or (b) stays in Hong Kong for more than 180 days during a year of assessment of for more than 300 days in two consecutive years of assessment.
A company is regarded as a Hong Kong tax resident, if the company is incorporated in Hong Kong, or if the company is incorporated outside Hong Kong, being normally managed or controlled in Hong Kong.
Tax Treaty - Hong Kong tax treaty
Hong Kong has entered into Comprehensive Double Taxation Agreements with 40 jurisdictions, to prevent double taxation and fiscal evasion, and foster cooperation between Hong Kong and other international tax administrations by enforcing their respective tax laws. A list of the comprehensive double taxation agreements currently concluded can be found on Inland Revenue’s Department’s website at www.ird.gov.hk.
Tax Treaty - Hong Kong tax certificate of residence status
A certificate of resident status is a document issued by the Hong Kong Inland Revenue Department to a Hong Kong resident who requires proof of resident status for the purpose of claiming tax benefits under the Comprehensive Double Taxation Agreements.
Tax Treaty - Does Hong Kong have tax treaty with US
Hong Kong has entered into Comprehensive Double Taxation Agreements with 40 jurisdictions, to prevent double taxation and fiscal evasion, and foster cooperation between Hong Kong and other international tax administrations by enforcing their respective tax laws. However, Hong Kong currently does not have a tax treaty with US. Nevertheless, Hong Kong has a Tax Information Exchange Agreement with US to combat tax evasion by providing effective change of information between Hong Kong and US.
Hong Kong transfer pricing
Hong Kong transfer pricing came into force in July 2018, where it introduced a comprehensive legislative framework to govern how pricing for supply of goods and services between associated enterprises should be determine and implemented. Overall, Hong Kong transfer pricing laws follows the guidelines and policies set forth by the Organisation for Economic Cooperation and Development to combat erosion and profit shifting and to eliminate harmful tax competition among jurisdictions.
Hong Kong tax permanent establishment
The determination of corporate residence (i.e. permanent establishment) is important for the purpose of a comprehensive double tax agreement. Whether a foreign corporation is carrying on a trade, profession, or business in Hong Kong and the source of profits are the decisive factors when determining taxability. For this purpose, if a foreign corporation has a PE in Hong Kong, it will be deemed as carrying on a trade, profession, or business in Hong Kong.
A permanent establishment is a fixed place of business through which activities of the company are carried on (including a branch and a place of management). In addition, a company is regarded as having a permanent establishment in Hong Kong if the company has an agent carrying on certain activities in Hong Kong.
Hong Kong tax information exchange
Hong Kong tax authority can exchange information with another country’s tax authority in two ways: (i) Automatic Exchange of Financial Account Information in which information are exchanged automatically between the tax authorities under the OECD model; and (ii) Comprehensive Double Taxation agreements/Tax Information Exchange Agreements in which information are exchanged manually (upon request) between the tax authorities.
Filing of Transfer Pricing Documentation
Following the Base Erosion and Profit Shifting (BEPS) Action 13 developed by the Organisation for Economic Co-operation and Development (OECD), the Hong Kong Inland Revenue Ordinance (IRO) provides the requirements of preparing transfer pricing (TP) documentation under three-tiered approach, for the purpose of facilitating TP risk assessment and transparency of tax information. The three-tiered approach includes the following:
- Country-by-country report (CBCR) , which contains information relating to the global allocation of income and taxes paid together with certain indicators of the location of economic activities of a multinational enterprise (MNE) group.
- Master file, which contains standardised information relevant for all constituent entities of the MNE group.
- Local file, which contains the material transactions of a specific constituent entity of the MNE group.
A Hong Kong entity is required to prepare and file the above TP documentations to the IRD by the prescribe deadline if the exemption criteria cannot be met. Failure to comply with the requirements will result into penal actions taken by the IRD.
Our international tax professionals can navigate through the complex TP rules and regulations, and to provide the following tailor-made services:
- advise whether a Hong Kong company is statutorily required to prepare the above TP documentations;
- prepare the CBCR, master and local file, including transfer pricing report, for meeting the requirements under the IRO.
For more information on transfer pricing and our services, click here.
International Tax & the British Virgin Islands
The BVI has introduced the Economic Substance (Companies and Limited Partnerships) Act, 2018, under which the prescribed entities on the BVI carrying out certain types of business activities are required to maintain economic substance on the BVI.
The business activities subject to the economic substance requirements include but are not limited to investment holding business, intellectual property holding business and headquarters business. The substance required to be maintained on the BVI includes but is not limited to physical office and assets, employees, management and core income-generating activities.
Having said that, in case the BVI entities are a tax resident in other foreign tax jurisdiction (which is not a black-listed jurisdiction), which can be supported by the documentary evidence such as a Certificate of Resident Status issued by the competent authority of the relevant foreign tax jurisdiction, it shall potentially not be subject to the substance requirements on the BVI.
The BVI entities are obliged to provide the prescribed information annually to their registered agents on the BVI for reporting to the BVI government authorities.The first reporting period for the BVI Entities incorporated prior to 1 January 2019 is from 30 June 2019 to 29 June 2020, and the reporting deadline is 29 December 2020.
Our international tax experts can provide the following services:
- Analysing whether a BVI entity is subject to the substance requirements on the BVI.
- Preparing an annual reporting regarding the substance maintained by a BVI entity as required under the laws.
- Reviewing the current shareholding structure, analysing whether a shareholding restructuring should be conducted (such as closing down the BVI entity) and whether a BVI entity should be tax resident in other tax jurisdiction, and advising the resulting tax implications/consequences.
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