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, including but not limited to the following:
- 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
Preparing and filing 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
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 click here to access our CoR article.
Filing of TP 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:
(i) country-by-country (CbC) report, 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;
(ii) master file, which contains standardised information relevant for all constituent entities of the MNE group; and
(iii) 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 inter(national) 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 cBc report, master and local file, including transfer pricing report, for meeting the requirements under the IRO.
Economic Substance Reporting on the BVI
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:
(i) analysing whether a BVI entity is subject to the substance requirements on the BVI;
(ii) preparing an annual reporting regarding the substance maintained by a BVI entity as required under the laws; and
(iii) 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.
For more information, please click here to access our economic substance article.
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The End of the Offshore Regime in Hong Kong?14 October 2020
The OECD is currently working on a new proposal to further address the Base Erosion and Profits Shifting (“BEPS”) project. The BEPS project itself was launched to prevent multinational enterprises (“MNEs”) from the exploitation of gaps and mismatches in tax rules by artificially shifting profits from high to low or no-tax locations where there is… read more
Termination of the Shipping Income Tax Agreement Between the United States and Hong Kong21 August 2020
On 19 August 2020, the government of the United States (“the US”) announced that the agreement in respect of double taxation relief on income derived from the international operation of ships entered into between the US and Hong Kong (“the Agreement”) has been terminated. Pursuant to the Agreement, which has been effective since 1989, income… read more
Tax Incentives in the Greater Bay Area and Free Trade Zones/Port in Southern China7 July 2020
Pursuant to a co-operation framework agreement entered into in July 2017, Hong Kong, Macau and nine municipalities in the Guangdong Province of Mainland China including Guangzhou, Shenzhen, Zhuhai, Foshan, Huizhou, Dongguan, Zhongshan, Jiangmen and Zhaoqing have strategically integrated to form the Greater Bay Area (“GBA”), with a view to develop the region as a world-class… read more
Did you receive THE Green Envelope? Tips on the 2019/20 individual (salaries) tax return7 June 2020
Individual Tax Return Filing for the Year 2019/20 The Hong Kong Inland Revenue Department or simply the Hong Kong Tax Authority (“IRD”) has now issued the year 2019/20 individual (salaries) tax returns (yes, that green envelope) for completion. Lodgement of tax exemption claims Individuals are obliged to report their relevant income in their individual tax… read more