Many clients registered companies in Hong Kong, mainly to take advantage of Hong Kong tax system differences to achieve legal and reasonable tax arrangements. This is because the profits tax in Hong Kong mainly adopts the principle of territorial taxation, that is, only business income obtained in Hong Kong needs to be subject to profits tax. Conversely, income earned outside Hong Kong is not subject to profits tax. The Hong Kong tax principle does not look at whether you are a Hong Kong business or a Hong Kong resident.

In the audit of Hong Kong companies, many clients are only registered in Hong Kong, and the operating income of the company is completely outside Hong Kong, so there is no need to pay profits tax in Hong Kong on this profit. The tax bureau will have different judgment principles for such cases:

1. The profits of the trading company will be derived from the place where the purchase and sale contracts are concluded; Enter into negotiations, make a contract and enforce the terms of the contract, etc.

2. Manufacturing profits: The profits related to the manufacturing process will not be regarded as taxable income because the manufacturing process will be carried out from the place where the goods are manufactured (processing of incoming materials will be treated separately) and part of the manufacturing process will be carried out overseas.

Commission on sales and sales: place of business (place of service)

Iv. Other income: It shall be treated according to different circumstances, taking into account the above principles.

In short, the tax bureau's consideration focus will still be based on the overall facts of the taxpayer. Each case has different nature, and its income and related transactions will have different judgment conditions.

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