Profits Tax - Source of manufacturing profits
From my experience, the Revenue's lines of practice are
The source of profits of a
manufacturing concern is the location of the factory. In other words, if goods
are manufactured in Hong Kong, the
profits from the sale will be fully taxable. This is because the profits
are derived from
the manufacturing operation done in Hong Kong.
If goods are manufactured partly in
Hong Kong and partly outside, that part of the profits attributable to
the manufacturing outside Hong Kong is not taxable. The place of sale is
Hong Kong manufacturers set up factories in mainland with a mainland
enterprise. Usually, the Hong Kong manufacturer provides capital,
materials, technical knowledge, management, training, supervision...
etc. On the other hand, the mainland party provides land and labor. In
general, with a view to avoiding tax disputes, the Revenue accepts
Apportionment of profits from the sale of the manufactured goods
between Hong Kong source and non-Hong Kong source on a 50:50 basis ---
that means only 50% of the profits are assessable.
manufacturing is contracted to an independent sub-contractor in
mainland and the Hong Kong company plays little part in the
manufacturing, then the Revenue may accept the profits from the
manufacturing as not assessable. Nevertheless, the profits made by
the Hong Kong concern from the sale of the goods are still taxable.