How To Get Offshore Status for your Hong Kong Company

Michael MicheliniBlog, Corporate, Taxes9 Comments

A lot of people wonder, where should I setup my offshore company? Talking to a lot of them, they don’t realize that Hong Kong actually has the option of filing offshore status.

Its a bit tricky, and most accountants either don’t want to come out and say it. Or they are afraid to go “on the record” and put it out there on the internet. Today we will go into a bit of a detail on the process and what’s involved.

So What Is an Offshore Hong Kong Company?

It is a bit confusing, some would say Hong Kong is already offshore. But this is in terms of offshore from Hong Kong. The tax department here is the IRD, Internal Revenue Department. They created this option for local Hong Kong companies who were going abroad – outside of Hong Kong.

So to get this tax exemption, you need to prove that you don’t have any physical or business presence in Hong Kong. If you qualify, you will get out of paying the 16.5 corporate tax on those profits.

The word to call this is Offshore Claim. You can read about the offshore profit claim in the official Hong Kong government websites here:

IRD provides a PDF

And provides as a guide.

What You Need To Apply For Offshore Status

Interested in applying for this option with your Hong Kong company? We at Global From Asia can help you do it.

Once you apply with us and provide your company name and BR number, we can start the process.

We need the following information to assess the chance.

  • Business nature

  • Any stock or warehouse in HK

  • Any business contract signed by HK entity

  • Where the management lives

The main point is that the Hong Kong tax department wants to make sure you’re not benefiting from any of the local services. This also means you’re not selling locally to Hong Kong people or businesses.

The process may have a bit of back and forth. There might be further details asked once we submit the paperwork. This is why you should keep clear bookkeeping records and all other business contracts and documentation organized. We may ask you for this, and the sooner you provide additional information, the better we can build up the case.

Filing For Offshore Is a 1 Time Thing

To file for the offshore status, it is a one time thing. You don’t need to pay each year to renew or upkeep the status. You’ll still need to do your yearly audit, as the CPA will need to see if you are still truly offshore or not. So while you won’t have tax liabilities on your profit tax return, you will need to still have the audit report and the auditor sign off on the books that it is still offshore.

Can You Have Partial Offshore and Partial “Regular”?

Many ask, well I have some customers in Hong Kong, can I then pay tax on those and then get exempt from the non-Hong Kong business. I have a friend (won’t name names here) who did a 50% offshore and a 50% “onshore” setup and it worked for a while. The tricky part came when he tried to change 30%/70% split in the following year. And they asked the director questions to prove offshore.

So while it is possible, your accountant fees will be much more higher. And you’ll need to keep good bookkeeping to separate the 2. Thus we advise to either be 100% one or the other. Or to have separate businesses.

If You Go Offshore In Later, Can You Get A Tax Refund On Previous Filing Years?

More digging questions. If the limited company decides to file the offshore claim on the second or third year, what happens? Sure, this is possible. But then the directors ask, can they then claim a refund of the prior tax years.

I don’t think any government gives tax refunds for previous filing years. Once you filed and filled out your profit tax return with your numbers, then you are locked in.

When Should You File Your Offshore Claim?

So when should you think to file this? Its something you can do as soon as you open the company, and we have now been advising people to do it that way. The auditor at the time the profit tax return is issued will take note that this company is an offshore status and take that into account while they are doing the audit process.

That means, it doesn’t do anything bad to start as soon as you file the new company. You’ll nee to build up your case, and not only say that – but practice that. I am not sure what happens if you are found violating the offshore status by doing domestic business, I haven’t had a client or friend in this situation. The assumption here is you won’t get any of those tax exemptions even if you have 90% of it following the correct procedures.

Many accountants in Hong Kong may tell you to wait to file the offshore tax return until the first year. Why would they advise this? The logic I have been gathering is that maybe your tax liability (the profits you need to pay the 16.5% tax on) is less than the cost of filing the offshore tax option.

What they aren’t taking into account that the cost to file the offshore tax claim is a one time cost. Once the fee has been paid, all years going forward will be at the offshore (0%) tax rate. So add up your expected savings over the lifetime of your Hong Kong company with this offshore status.

Another thought process for the accountants requesting the non-urgency in filing is maybe your sales won’t be so high in your first or second year. You’re just getting business started and figured out, so you can wait to file offshore once your revenue and profits are much higher.

I’ll leave it up to you to decide when to do it. But my feeling is if you’re going to do something, better to be setup and prepared from the beginning.

How Long Does The Process of Offshore Status Take?

Good question, how long from the time you file it will it take to get issued? No 100% straight answer here, sorry guys. But to give you an idea, it won’t be sooner than 6 months. This is because there will be some back and forth from the IRD if questions arise.

So what if you file for offshore status and then you need to fill out your profit tax return in the meantime. Well, because you don’t have the offshore status approved yet, you will need to file as a domestic company (and have the 16.5% tax rate).

This is just the way it is. Again, I have to say I need to put a disclaimer up here – do your own due diligence on this one. The crazy thing is how much conflicting information on this topic there is floating around from accountants and others with Hong Kong companies. I feel that the Hong Kong government really doesn’t want to promote this as they are losing out on that tax income. Policies may change and timeframes may change, it is a grey area from what a lot of my sources tell me.

Your Hong Kong Accountant Can Do This, But Other CPAs Can Too

Some have asked, do I need to use my current accounting in HK to file this for me? They’re comfortable with their current bookkeeper and accountant – but the firm may not be sure how to do the offshore status or may have a higher fee.

Lucky for you, it is possible to have a different firm in Hong Kong to file the offshore status for you. Therefore, you can ask us, or other agencies to help file this paperwork and submit the results to your accountant.

How Much Does It Cost To Apply For Offshore?

So of course you’re sitting there on your laptop on the beach in Thailand – maybe on the edge of your beach chair now as you are all excitd about this. So how much does it cost? Over the years doing this podcast and blog, I have heard numbers in many different ranges. So not to get you all disappointed, but you need to submit to us:

  • Your current business setup
  • Who the directors are
  • What nationalities
  • Other basic information above.

It is then we’ll see how complicated your case will be to submit to the HK IRD. Is there a lot of revenue, and a lot of directors? Or even more complex, is their shareholders who are corporate owners. The more layers of corporations, the most documentation and the more questions that will come up. So, the price for this will have to go up.

Please submit a request for proposal for more information on our helping you file an offshore claim for your HK corp.

We offer another service that may be interesting to you – a Hong Kong business review package. We will discuss your current Hong Kong company structure, what tools you’re using, your accounting firm, how your audits and bookkeeping has been going. This package is where we can also do a custom assessment for your business situation and give a clear picture of if you’d qualify for the offshore tax status.

Remember, Even if You Get The Offshore Status, Need To Do Yearly Audit

So don’t think that when you get this offshore “ticket” you can skip out on bookeeping and yearly filing. Nope, you’ll still need to do those things.

We’ve talked about earlier in this article, the difference here is that when you submit your books to the HK auditor, they will take into account the offshore status. They have a license from the Hong Kong government to ensure that the companies are doing the books the correct way. They are somewhat liable if they don’t catch certain mistakes in the books.

And the cost of the audit will be the same, as well as bookkeeping process and systems.

Renew Offshore Status Every 3 Years

After writing this article, I learned from more CPAs that you need to keep this active. So after the third year you will need to state you are still doing the same business or if things have changed. If they are the same, then you can keep it.

Are You An Offshore Hong Kong Company? How’s It Going? Other Questions or Feedback?

So I hope today’s article helped you out. It is always a … dry… and somewhat painful topic to read about. No one likes taxes, but today may give you some inspiration and motivation to find a way to get the 0% option for your HK company.

Do you already follow this and have the offshore option? Hows it going? I personally don’t use this option, as I am a local HK company with sales and business happening on the ground in Hong Kong. Working with clients doing this offshore, they are always so nervous to be considered doing business in HK with a company like me. I get some free products and services as a perk 😉

Please share any questions, feedback, or challenge me about some ideas I shared in the comment section below.

And if you love us so much, it would be awesome if you consider our “Hong Kong Business Review Package”. This is where we check over where you are in the process and in your business position and make some suggestions to improve it even more.

Or, if you’re sure you want to file for offshore status, you can send us an offshore request for proposal here.

To our mutual business success!

File Your Offshore Claim

Are you ready to file for offshore status for your Hong Kong limited company? Then get it started now!

We recommend you first use our “Hong Kong Business Checkup” Package and work with one of our specialists here before getting this service. This will ensure we agree your case is suitable to apply here and you have a high chance of passing the IRD evaluation.

But please, only buy this service if you are confident your case will pass the criteria for to qualify as an offshore business. That means:

  • No clients in Hong Kong

  • No operations in Hong Kong (office, staff)

  • No web hosting in Hong Kong

  • Sales and business activity not happening in HK

  • No warehousing and fulfillment happening here (by you or a third party).

If you are ready, then let’s just go right to it:

The Process

Once you signup and complete your payment, we’ll need the following:

  • Your company name
  • Your CI number
  • Your BR number
  • Your Business Nature
  • Have you filed an audit yet?
  • Copy of Your Date of Incorporation (on the CI document, you can just send us that)

And then the basics for building a case for offshore status:

* Business nature
* Any stock or warehouse in HK.
* Any business contract signed by HK entity
* Where the management lives

Start Now

Complete the process now and get moving towards being an offshore company

9
Leave a Reply

avatar
8 Comment threads
1 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
  Subscribe  
newest oldest
Notify of
trackback

[…] of audits being processed, and I wrote up an article about the offshore claim process. Are you running your HK […]

trackback

[…] tax department at least a little bit. If you want to read about the details, we have a full guide here and if you just want to skip and pay us to handle your offshore filing, our sales offer is […]

trackback

[…] is 16.5%, which is low already in the global index. On top of that, if you can prove you’re an offshore business, you can get a 0% exemption on the earnings you make outside of Hong […]

trackback

[…] have talked in the Global From Asia blog many times about the offshore election for a HK limited (read more here) – but if you are planning to come to Hong Kong and open up an office, hire staff, and apply […]

trackback

[…] mentioned in the offshore claim blog post, you need to prove in your financial statements […]

Alex Zubkov
Guest
Alex Zubkov

Thank you for the helpful and informative article. I’m a Hong Kong permanent ID card holder but I’ve been living outside Hong Kong since 2010. I visit HK every 3 years to keep my permanent resident status current. I’m not HK SAR citizen, I hold passport of another country. Can I set up a company for the purpose of Amazon FBA and benefit offshore 0% tax advantage? I plan to buy from China and sell in US. Thanks in advance for your help.

Rasmus
Guest
Rasmus

Are you allowed to have a virtual office in Hong Kong and still be eligible for the offshore status? If you dont have a virtual office in Hong Kong what is the business address of your company?

Martin Heitzinger
Guest
Martin Heitzinger

Good question! That’s what I also want to know!

Tori Victorish
Guest
Tori Victorish

I study the features of creating offshore companies in different countries of the world. Thank you for the detailed and informative article. Very informative!