Key Takeaways
The IRD typically reviews every offshore tax claim, but the level of scrutiny can vary. Approval is never guaranteed.
Strong bank evidence and supporting documents are important, but the IRD also weighs contracts, operations, and decision-making locations.
Offshore status isn’t “set and forget.” If circumstances change, the IRD can revisit past claims — sometimes leading to back taxes.
On paper, Hong Kong’s offshore tax exemption looks straightforward. If your profits are earned outside the city, why should you pay tax here? Unfortunately, it’s not that simple.
The Inland Revenue Department (IRD) takes a hard look at every offshore claim. Combined with Hong Kong’s famously low corporate tax rate, they’re especially wary of businesses trying to stretch the definition of “offshore.”
That means they’ll have a lot of questions. Sometimes it’s a short email exchange, and other times it's months of back-and-forth. They may want to see contracts, invoices, shipping records, bank statements, or proof of where and how your business decisions were made. Claims can be rejected, delayed, or even overturned years later, leaving you with back taxes plus penalties.
In this guide, we’ll cover everything you need to know about offshore tax claims, including:
✅ How the IRD actually audits offshore tax claims
✅ The red flags they look for in your documents
✅ Practical steps to strengthen your case before you file
What Is an Offshore Tax Claim?
An offshore tax claim is when a Hong Kong company applies to have certain profits excluded from taxation because those profits are earned outside Hong Kong.
The appeal is obvious: reducing, or even eliminating, corporate tax in Hong Kong gives companies more room to invest, grow, and compete abroad.
However, an offshore claim doesn’t mean a free pass. You’ll still need to pay tax in the country where the profits were generated. Trying to avoid tax altogether is considered tax evasion – and IRD takes that very seriously.
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💡Did you know? The cost of offshore tax advisory varies widely depending on the country. In some jurisdictions, filing is simple, while in others it can be far more complex. Founders should calculate the total cost of offshore tax advisory in multiple countries and weigh it against paying standard Hong Kong tax. |
Relevant: Read our guide to debunk 7 myths about offshore tax claims in Hong Kong.
The IRD Audit Process for Offshore Tax Claims
Once you decide to file an offshore claim, the process with the IRD follows a fairly structured path. It usually begins with your annual tax filing, and depending on how convincing your documentation is, it may stop there, or extend into months of back-and-forth and even on-site checks. Here’s how it typically unfolds.
1. Submission of Profits Tax Return (PTR)
Every Hong Kong company must file a PTR each year, but if you’re applying for offshore status, the filing needs to go a step further.
You’ll have to provide:
- Audited financial statements prepared by a CPA
- A detailed tax computation showing how your offshore profits were calculated
- A cover letter that explains why those profits shouldn’t be taxed in Hong Kong.
2. Initial Review and Inquiry
Upon submission, the IRD carries out an initial review. If something doesn’t quite add up or they need further details, you’ll receive what’s called an inquiry letter.
How you respond to their questions is critical. Answering quickly and with complete documentation can help move things along, while slow or vague replies can trigger more questions or outright rejection.
3. Field Audit (If Applicable)
Sometimes, documents alone aren’t enough, and the IRD decides to dig deeper with a field audit. This is the more serious stage, where they might visit your business premises, review your accounting systems in detail, and even interview directors or staff to confirm where your operations really take place.
Important: This detailed investigation can stretch six months or more. And even if your profits are genuinely offshore, there’s no guarantee the IRD will approve your claim.
The Evidence You Need for an Offshore Tax Claim
The IRD checks offshore claims to make sure businesses are truly operating abroad, not just set up for tax reasons. Organise your evidence into three areas: operations, banking, and supporting records to show that your business is really based offshore.
Offshore Operations
These documents show where your business is actually operating, where decisions are made, and where your staff are based.
| Document | Why it works |
|---|---|
| Overseas office leases | Confirms your company maintains a physical presence abroad |
| Board resolutions and meeting minutes | Shows decision-making takes place outside Hong Kong |
| Employment contracts and payroll records | Demonstrates that staff are genuinely based overseas |
| Service agreements | Supports that business activities are conducted offshore |
Bank Evidence
Your banking records must clearly demonstrate that funds never touched Hong Kong. This helps prove your business is genuinely operating offshore.
| Document | Why it works |
|---|---|
| Overseas bank statements | Shows income and expenses are managed entirely offshore |
| SWIFT/IBAN remittance records | Confirms payments move directly to foreign accounts |
| Invoices and contracts | Links each transaction to documents without HK bank details |
| No Hong Kong references | Ensures no local account numbers or bank identifiers appear |
| CPA-audited financials | Provides reconciled records that verify offshore-only funds |
| Payment chain documentation | Demonstrates the full transfer trail if multiple banks are involved |
Best Practice: Keep records in chronological order and match each transaction with its supporting contract or invoice. A clean, dated trail leaves little room for the IRD to argue otherwise.
Additional Records to Strengthen Your Case
These supplementary records make your offshore position harder to challenge.
| Document | Why it works |
|---|---|
| Operational flow charts | Maps where work is carried out and by whom |
| Business registrations abroad | Confirms the company is legally active in another jurisdiction |
| Segregated profit and loss accounts | Separates Hong Kong activity from offshore operations |
| Marketing and trade show records | Proves overseas business development and presence |
| Shipping and logistics documents | Demonstrates goods were moved and stored abroad |
| Communication evidence | Supports offshore activity with emails, travel records, expenses |
| Technology/IP licences abroad | Confirms rights are held or used offshore |
| Customer and supplier due diligence | Shows transactions involve genuine overseas parties |
Tip: IRD looks for consistency. If contracts, payments and operations all tell the same offshore story, your claim will stand on much stronger ground.
Maintaining Offshore Status: Ongoing Compliance and Annual Audits
When the IRD grants offshore status, it typically applies for three to five years. After that, you will need to renew your claim and provide updated evidence. The IRD also reserves the right to check in earlier if it sees inconsistencies in your tax filings or suspects your operations have shifted back to Hong Kong.
So how do you keep the IRD on your side?
Annual audits play an important role here. Each year, your CPA will review your financial statements and tax computations to confirm your offshore position. Keeping separate accounts for Hong Kong and offshore activities makes this process smoother and shows the IRD a clean story if questions arise. And if the IRD does reach out between audits, being able to hand over updated documents quickly will work in your favour.
Warning: If the IRD is not convinced that your business operations continue as claimed, you could be required to backpay taxes for the last few years with interest and penalties of up to HKD 10,000.
Final Note
Offshore status lasts only as long as your records prove it. The IRD doesn’t take claims on trust, but if you stay audit-ready and keep evidence consistent, you’ll avoid any surprises and save yourself a lot of money in the long run.
FAQs
Is the offshore claim subject to review?
Yes. The IRD audits every offshore claim to verify that profits are genuinely earned outside Hong Kong.
