Lower tax rate in Hong Kong

Background

  1. Mr. A originally buying from China and selling to France using his own French company as the middle trading firm (F Ltd);
  2. Mr. A flies frequently to Hong Kong and China – to meet clients and suppliers; and
  3. Trading profit of Euro 100,000 is subject to French tax rate – around 40% .

New arrangement

  1. Mr. A setup a Hong Kong company, H Ltd;
  2. H Ltd becomes the middle trading company – buying from China and selling to France;
  3. Goods still shipping directly from China to France;
  4. Selling and purchase at same price as before; and
  5. Mr. A hires a staff in Hong Kong – to help handle the sales and purchase orders.

Benefit

  1. Profit of Euro 100,000 will be profit of H Ltd;
  2. Hong Kong profits tax rate of 16.5% applies; and
  3. There is saving of 23.5% in profits tax.

Overall Tax Position

Mr. A still needs to fulfill personal income tax filing to French government – in order to assess overall tax saving scenario.

Offshore operation tax exemption - Trading Business

Background

  1. Mr. A originally buying from China and selling to France using his own French company as the middle trading firm (F Ltd);
  2. Trading profit of Euro 100,000 is subject to French tax rate – can be as high as 40%; and
  3. Mr. A controls the business remotely – no need to maintain operation base in China or France.

New arrangement

  1. Mr. A setup a Hong Kong company, H Ltd;
  2. H Ltd becomes the middle trading company – buying from China and selling to France;
  3. Goods still shipping directly from China to France;
  4. Selling and purchase at same price as before; and
  5. Location of operation – Mr. A still operating the business – without maintaining operating office in Hong Kong, China and France.

Benefit

  1. Profit of Euro 100,000 will be profit of H Ltd;
  2. As H Ltd maintains only register address in Hong Kong, but not operating office and also fulfill the contract effective test. H Ltd is eligible to apply its trading profits exempted from Profits Tax from the Hong Kong Inland Department (HK IRD); and
  3. There is saving of 40% in profits tax.

Overall Tax Position

Mr. A still needs to fulfill personal income tax filing to French government – in order to assess overall tax saving scenario.

Offshore operation tax exemption in Hong Kong

H Ltd should fulfill operation test and contract effective test, which include below:

  1. No operation office maintaining in Hong Kong (this is different from register address);
  2. No staff hired and working in Hong Kong;
  3. No customers / clients from Hong Kong;
  4. No suppliers from Hong Kong;
  5. Income contract not negotiated or concluded in Hong Kong;
  6. Goods not entering Hong Kong.

Offshore operation tax exemption - Service providing business

Background

  1. Mr. A is a French who knows many businessmen doing jewellery business all over the world;
  2. These businessmen will pay Mr. A service fee every time when Mr. A refers them the customers;
  3. Mr. A originally uses his own French company to act as the middle man to link up these businessmen with the customers he found;
  4. Mr. A controls the business remotely – no need to maintain operation base in France; and
  5. Profit of Euro 50,000 is subject to French tax rate - can be as high as 40%.

New arrangement

  1. Mr. A setup a Hong Kong company, H Ltd;
  2. H Ltd becomes the middle company – to link up customers via the network of Mr. A in the jewellery business all over the world execpt Hong Kong;
  3. Referral service is delivered to the jewellery businessmen like before; and
  4. Location of operation - Mr. A still operating the business - without maintaining operating office in Hong Kong and France as well as rendered all referral service outside Hong Kong.

Benefit

  1. Profit of Euro 50,000 will be profit of H Ltd;
  2. As H Ltd maintains only register address in Hong Kong, but not operating office and also fulfilling offshore operation test.
  3. H Ltd is eligible to apply its service income exempted from Profits Tax from the Hong Kong Inland Revenue Department; and
  4. There is saving of 40% in profits tax.

Overall Tax Position

Mr. A still needs to fulfill personal income tax filing to French government – in order to assess overall tax saving scenario.

Offshore operation tax exemption in Hong Kong

H Ltd should fulfill operation test, which include below:

  1. No operation office maintaining in Hong Kong (this is different from register address);
  2. No staff hired and working in Hong Kong;
  3. No customers / clients from Hong Kong;
  4. The service which give rise to the serivce income is not performed in Hong Kong.