Any activities, that give rise to the negotiation and that, both the sale and purchase activities were performed outside Hong Kong, such trading profits can be considered as offshore and is not chargeable to Hong Kong Profits Tax under proper planning and advance documenting.
Many companies established in Hong Kong have their manufacturing processing settled in Mainland China. If the Hong Kong manufacturer enter into a processing or assembly arrangement with a Mainland China entity under certain terms and conditions, portion of the manufacturing profit can be excused from Hong Kong Profits Tax.
These terms and conditions include, but are not limited to:
- The China entity shall be responsible for processing, manufacturing and assembling the goods for export outside China.
- The China entity provides the factory premises, land space and labour force.
- The China entity charges a processing fee and exports all the processed goods to the Hong Kong manufacturer.
- The Hong Kong manufacturer usually provides the raw materials to the factory premises, as well as the manufacturing plant and machinery, technical skills, management production skills, designs, skilled labour force, training and supervision for the China entity.
The IRD enables the profits on the sale of the goods to be apportioned under consideration. The apportionment is usually on a 50:50 basis. In other words, of all the profitable activities performed outside Hong Kong, only 50% of the profit is subject to the Hong Kong Profits Tax.