If you’re thinking about setting up a company in Hong Kong, you’ve likely heard it being called a “tax-free” haven for offshore businesses. In reality, Hong Kong’s low-tax system can be attractive — but it does not mean every company automatically pays zero tax.
Offshore tax exemption is possible, but only if you meet strict Inland Revenue Department (IRD) criteria and prove your profits are earned entirely outside Hong Kong. Without that proof, you could face unexpected tax bills, back payments, and penalties.
In this guide, we’ll bust seven common myths about Hong Kong’s offshore tax regime, backed by official IRD guidance and real-world cases. You’ll learn exactly what qualifies for exemption, what doesn’t, and how to avoid the costly mistakes that catch many business owners off guard.
Tip: Still wondering what offshore status really means in practice? Watch our short video for a simple breakdown before diving into the myths.
Myth 1: “Offshore companies in Hong Kong don’t pay taxes.”
Many believe that registering a company in Hong Kong means paying no taxes at all.
In reality, tax exemption only applies if every profit-generating activity takes place outside Hong Kong, and proving that to the IRD is far from simple.
Without approval, your profits will be taxed at standard rates, and you could face back taxes, interest, and penalties of up to HKD 10,000.
The IRD will look at your operations to see what counts as offshore and what does not:
What counts as offshore
✅ Contracts signed overseas
✅ Payments to a foreign bank
✅ Management meetings abroad
What doesn’t count
❌ Contracts signed in Hong Kong
❌ Payments received in a Hong Kong account
❌Strategic decisions made in Hong Kong
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Helpful source: Learn more about Hong Kong’s profits tax in our Guide to the Hong Kong Tax System and Rates.
Myth 2: “Once I register my business in Hong Kong, I automatically qualify for offshore status.”
You’ve just set up your Hong Kong company and expect instant offshore status, but the IRD does not hand it out automatically.
Offshore status is only granted after a formal application, and only if you prove that all profit-generating activities take place outside Hong Kong. The IRD checks where the work actually happens, not where your business is incorporated.
To qualify, you must go through a formal process:
- File your Profits Tax Return (PTR) with audited accounts, usually around 18 months after incorporation for your first filing.
- Apply for offshore exemption and submit supporting documents.
- Respond to the IRD’s questions or evidence requests during their review.
If you don’t follow these steps, the IRD will treat your profits as Hong Kong-sourced and issue a tax bill at the standard rate. You could also face back taxes covering previous years, interest on the unpaid amounts, and penalties of up to HKD 10,000.
In some cases, the IRD may open an audit, which can mean months of document reviews and correspondence.
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Myth 3: “If I don’t have a physical office in Hong Kong, my business is offshore.”
No Hong Kong office? That alone will not convince the IRD.
They focus on where control and profit-generating activities happen, not whether you rent an office space. If contracts are negotiated, management meetings are held, or key operations happen in Hong Kong, your profits can still be taxable here.
Some entrepreneurs believe that using only a registered address automatically counts as offshore, but the IRD views this as just an administrative detail.
When assessing offshore claims, the IRD looks at factors such as:
What counts as offshore
✅ Board meetings held overseas
✅ Contracts signed abroad
✅ Staff and suppliers based outside Hong Kong
What doesn’t count
❌ Virtual meetings run from Hong Kong
❌ Contracts negotiated or finalised in Hong Kong
❌Hiring local staff for core operations
Examples of supporting evidence
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Myth 4: “My overseas clients mean my income is offshore.”
Even if every customer is based overseas, the IRD may still decide your profits are taxable in Hong Kong.
Client location is not the deciding factor. What matters is where the income-generating activities take place.
The IRD will review which activities support or undermine your offshore claim:
Supports offshore claims
✅ Sales contracts signed abroad
✅ Order fulfilment handled overseas
✅ Overseas-based customer support
Weakens offshore claims
❌ Contracts negotiated or signed in Hong Kong
❌ Orders processed or shipped from Hong Kong
❌ Queries handled from Hong Kong
Examples of supporting evidence
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Myth 5: “No need to file taxes if I claim to be offshore.”
Skipping your Profits Tax Return (PTR) because you think you are offshore can trigger penalties.
In Hong Kong, every company must still file a PTR and audited financial statements, even if claiming exemption. Unincorporated businesses, such as sole proprietorships and partnerships, are not eligible for offshore company status, so the claim would not apply to them at all.
Here’s the correct order to follow when making an offshore claim:
- Complete your annual audit.
- File the PTR with the IRD.
- Submit your offshore claim with supporting evidence.
Examples of supporting evidence
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Myth 6: “Using a nominee director or agent keeps me offshore.”
Hiring a nominee director in Hong Kong does not automatically make your profits offshore.
The IRD looks through nominee arrangements to see who actually controls and manages the business.
When reviewing nominee arrangements, the IRD will compare indicators of local control with those of offshore control:
Local control indicators
Decisions approved in Hong Kong board meetings
Hong Kong bank account management
Contracts signed in Hong Kong
Offshore control indicators
Strategic meetings held overseas
Overseas accounts controlled abroad
Contracts executed offshore
Examples of supporting evidence
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Myth 7: “Once I get offshore status, I’ll never be taxed.”
Offshore status in Hong Kong is not permanent.
The IRD can review your status at any time, and changes in operations or control can lead to revocation. In practice, status is often reviewed every 3–5 years, though it can be sooner if the IRD sees red flags.
The IRD may re-examine your case if certain changes suggest your business is now operating from Hong Kong:
- Hiring staff in Hong Kong: Suggests part of operations now happens locally.
- Signing contracts in Hong Kong: Indicates profit-generating activity locally.
- Moving management meetings to Hong Kong: Shows central control has shifted locally.
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Get Your Offshore Setup Right with Statrys
After reading the myths above, you know that getting offshore status in Hong Kong is not about ticking a few boxes. It is about proving, year after year, that your operations meet strict IRD requirements. That means the way you set up your company from day one matters just as much as how you run it.
Statrys helps you build that strong foundation. Our Hong Kong company registration package covers everything essential for compliance and peace of mind, with one transparent price and no hidden costs:
- Company registration: name availability check, preparation and filing of all incorporation documents, Certificate of Incorporation, Business Registration Certificate, and company chops.
- Company secretary and compliance: annual return filing, statutory records maintenance, automated filing reminders, and 24/7 online access to all company documents.
- Registered address and mail handling: official Hong Kong address plus mail scanning and forwarding for one year.
- Business account support: assistance opening a multi-currency business account service that enables you to send and receive payments in over 100 countries.
You will also have a dedicated account manager to guide you through each step, with all your company information stored securely in your Statrys dashboard for easy access anytime.
FAQs
What is the offshore tax exemption in Hong Kong?
Offshore tax exemption in Hong Kong allows a company to be exempt from paying profits tax if its income is earned entirely from outside Hong Kong. However, exemption is not automatic — you must apply to the Inland Revenue Department (IRD) and provide evidence that your profits are foreign-sourced.
