Q：
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What are the criteria for taxing profits in Hong Kong?
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A：
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Hong Kong adopts a territorial source principle of taxation. Only profits which have a source in Hong Kong are taxable. Profits sourced outside Hong Kong is not subject to Hong Kong profits tax.
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Q：
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What are the pre-conditions for liability to profits tax?
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A：
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A person is chargeable to profits tax under the following conditions:
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Carries on a trade, profession or business in Hong Kong;
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The trade, profession or business derives profits; and
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The profits arise in or are derived from Hong Kong.
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Q：
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How to determine the source of profits?
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A：
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The following principles have emerged from authoritative court decisions to determine the source of profits:
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Matter of fact
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The operations test
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Antecedent or incidental activities
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Place where decision is made
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Gross profits from transactions
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Business presence overseas
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Q：
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Will Inland Revenue Department (“IRD”) use same test to determine source of different business profits?
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A：
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No, different tests will be adopted by IRD to determine the source of different business profits.
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Q：
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What kind of test will be used to determine the source of main types of business profits?
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A：
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Below are some examples that IRD uses to determine the tax liability in Hong Kong:
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Income
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Factors
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Trading
profits
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Place where contracts
for purchase and sale are effected
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Manufacturing
profits
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Place
where the goods are manufactured
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Rental
income
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Location
of property
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Profits
from listed shares
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Location
of stock exchange
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Profits
from unlisted shares
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Place where contracts
for purchase and sale are effected
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Service
income
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Place
where services are performed
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Interest
income
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Place
where funds are provided
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FAQ
