Where cross-border investment or trade is involved then tax advice needs to accommodate multi jurisdictions. Whilst often local issues may be the focus for clients, it is often only when the full international scenario is considered that the real risks are identified, and the most appropriate action can be taken.
International Tax (HK) Co. Ltd. have the skill and experience to tackle such complexities, including:
- International corporations with operations in another country being deemed to be have a permanent establishment in a that country, and so taxable there.
- Tax treaty benefits and how to make the most benefit from them.
- Reviewing or instigating transfer pricing policies for inter-company transactions so that these are tax efficient and comply with relevant tax legislation.
- The risk of employees or contractors of a company working on a project in another country and finding themselves becoming tax resident in that country.
Tax Certificate of Hong Kong company
A Tax Certificate of Hong Kong company is a letter certifying that a company is a tax resident in Hong Kong. It is essentially confirmation from the Inland Revenue Department of Hong Kong (“IRD”) that the control and management of a company’s business is exercised in Hong Kong.
Hong Kong company tax resident and non-resident companies are generally taxed in the same manner, except that Hong Kong company tax resident are able to enjoy the following benefits.
Before deciding to obtain a Certificate of Hong Kong company in Hong Kong company, companies should take note of the following:
a) Being incorporated in Hong Kong company does not automatically make a company a Hong Kong company tax resident – the residency status may change from year to year, depending on the key factors mentioned above.
b) Proper documentations, such as minutes of the Board of director meetings held in the year, noting the location, name of attendees and detailed description of the substantive matters that were discussed, are required.
c) Where Board of director meetings are conducted via conference call/ videoconferencing, the tax residency of a company will be considered based on the location of the majority of directors.
d) The place where an Annual General Meeting is held is not relevant.
e) The concept of control and management is mutually exclusive. It is not possible for a company to claim tax residency in Hong Kong and another country for a given year where the same test of control and management is applied. Administratively, the IRD will require a Hong Kong company to confirm as part of the Hong Kong Tax Certificate application process that it is not also asserting residency in another jurisdiction.
f) The IRD describes additional requirements which apply to foreign-owned investment holding companies. The company must demonstrate a business reason for establishing in Hong Kong and have an additional indicia of economic substance. This can include the existence of related companies carrying on business in Hong Kong; receiving administrative services from a group company in Hong Kong; or having at least one executive director or key employee based in Hong Kong (e.g., CEO, CFO, CTO, COO)
g) It is theoretically possible, but not common in practice, for a foreign incorporated company to be granted a Tax Certificate. Outside of exceptional circumstances, the general position is that a company must be Hong Kong -incorporated as well as resident under the test of control and management to obtain a Tax Certificate of Hong Kong company.
Practical solution for obtaining a Tax Certificate of Hong Kong company
Due to the uncertainty of when the current crisis might end, the two likely scenarios that companies might face, and what they can do are:
1. Adopt a “wait-and-see” approach, as we are only in the first quarter of 2020. Should the outbreak be contained, travel bans and restrictions will likely be lifted. Board of director meetings can then be held in Hong Kong from the second half of 2020.
2. Should the COVID-19 epidemic stretch into the second half of 2020, the BOD should start planning if a Tax Certificate is required for the calendar year of 2020. If required, the company may hold the Board of director meeting physically in Hong Kong, with all executive directors in Hong Kong, as well as related parties and service providers. If the directors are unable to travel to Hong Kong, companies may consider limiting the meetings to teleconferences, with the intention to ratify decisions made during the teleconferences by physical meeting in Hong Kong once the travel restrictions are lifted. Non-resident directors could consider appointing alternative directors who are based in Hong Kong and who are therefore able to physically attend Board of director meetings.