International Tax Planning

What are China tax risk?

  • Individual Income Tax of  foreign legal representatives of a representative office and company
  • Personal bank account
  • What are tax planning tips in Hong Kong?
  • Offshore income in HK
  • Income in country with lower tax rate or no VAT or GST
  • Direct cost and Expense in China or country with higher tax rate
  • High margin in HK by transfer pricing
  • Tax invoices in China

  • What is DIPN on re-invoicing center?

    The Department’s view is that if a profit is derived from services rendered in Hong Kong, the profit is clearly taxable.  Commission income or profit that accrues to a “re-invoicing centre” for services rendered is chargeable to profits tax.  Profits derived from the buying and selling of goods are not service income.  The transaction involves the taking of commercial risks (e.g. product risks, inventory risks, credit risks, exchange risks, capital risks, etc.) different from those attached to a service.  Confirmation of sales and issue of purchase orders are indications that it is a trading transaction.  The source of trading profits depends on the locality of the trading operations.  Paragraphs 18 to 26 are relevant. 

    It is not possible to categorize the circumstances under which income or profit derived by a “re-invoicing canter” would be regarded as a service income and not as a trading profit.  In each case, the Department would examine the nature of the operations and the type of risks in question to determine whether they constitute the provision of services or trading.  The label “re-invoicing canter” clearly does not in itself provide the answer as it can mean different business structures.

    What is DIPN21 on buying office in Hong Kong?

    A trading company, carrying on business outside Hong Kong, may set up a branch in Hong Kong to act as a buying office for the purpose of purchasing goods or merchandise or of collecting information.  The activities of the branch are confined to the purchase of goods or merchandise or of collecting information in Hong Kong and it is not involved in their sale, either in Hong Kong or elsewhere.  In such a situation, a liability to Hong Kong profits tax would not arise.  The functions of a buying office may also be carried out by a subsidiary company or by an agent (either related or unrelated).  However, as for a branch, the subsidiary company or agent must not be involved in the sale of the goods.  On the other hand, any commission or other remuneration earned by the subsidiary company or agent for performing its services in Hong Kong will be fully taxable. 

    Can you give an example of re-invoicing canter?

    Company A, incorporated in Hong Kong, is a re-invoicing canter of a group of companies with a holding company incorporated in the United States, as more particularly described below.  It manages in Hong Kong all foreign currency exposures from intra-company trade, guarantees the exchange rates for future orders and manages intra-affiliate cash flows, including lead and lags of payments.   Manufacturing affiliates in Mainland China sell goods to Company A, which in turns resells to the distribution affiliates in North America and Europe. Company A resells at cost plus a mark-up for its services.   The mark-up covers the cost of the re-invoicing canter and a reasonable return on the services provided. 

    The profits accrue to Company are service income derived from Hong Kong.  The mark-up earned by Company A, which acts as a re-invoicing canter, is chargeable to profits tax.

    What are common tax risks?

  • withholding tax
  • No deductible tax invoice
  • source of profit
  • commission not allowed