Whether a business is carried on in Hong Kong?
applies also to a trade or a profession likewise.
Once we have established that
there is a business, the next question is: Is
it carried on in Hong Kong? If no, then no profits tax is payable, unless
the income is deemed to be chargeable under Section 15 of Inland Revenue
Whether carrying on a business in Hong Kong
is largely a question of facts. In practice, the Inland Revenue
Department considers the following facts:
Incorporation of a company
in Hong Kong. If a limited company is set up in Hong Kong, the
IRD will generally challenge that the company is carrying on a
business in Hong Kong unless the company can adduce substantial
evidence to prove otherwise.
(2) A branch, an office, a
workshop, a shop or a sales outlet is set up in Hong Kong.
Apparently the aforesaid constitute a fixed place of business in
Hong Kong. If only a purchase office or a warehouse for storage
on goods in transit is set up in Hong Kong, the IRD will
generally accept it as no business carried on in Hong Kong.
(3) The company has a central
management and control in Hong Kong. In Lam Soon Trademark case,
a company incorporated outside Hong Kong is held to be carrying
on business in Hong Kong if the company is managed and control
in Hong Kong. Besides, according to the definition of permanent
establishment under Inland Revenue Rule 5, a permanent
establishment in Hong Kong includes a “management” set up in
(4) An agent of a non-resident
is appointed in Hong Kong to sell goods on behalf of the
non-resident and the agent maintains a stock of merchandise from
which he regularly fills orders – see IRR 5. In such case, the
non-resident is deemed to be carrying on business in Hong Kong.
(5) An agent of a non-resident
who has general authority to negotiate and conclude contracts of
sales or purchases on behalf of the non-resident – see IRR 5. In
such case, the non-resident is deemed to be carrying on business
in Hong Kong.
Trading with Hong Kong should
be distinguished from trading in Hong Kong --- vide UK court case Grainger
& Son versus Gough 3 T.C. 467. The former (trading with Hong Kong) does not give
rise to any profits tax liability; but the latter (trading in Hong Kong) does.
Setting up a buying office in
Hong Kong does not by itself make it chargeable to Profits Tax. For
foreign supermarkets may send purchasing officers to Hong Kong to buy
goods --- generally this is no trading in Hong Kong. But if a permanent establishment is set up in Hong Kong to buy and
sell goods, the permanent establishment will be liable to pay profits