Written by Bertrand Théaud, Founder
20+ years in Asia as a corporate lawyer, investor, and fintech founder. I've sat on both sides of the table and seen the same avoidable mistakes hit founders again and again. The reviews and articles I write are for founders who'd rather skip the mistakes.
Last reviewed by June 2026.
Key Takeaways
A Hong Kong company can pay 0% corporate tax on trading profits genuinely generated outside Hong Kong. The exemption is not automatic and must be applied for each year in the annual Profits Tax Return.
The IRD looks at where your trading activities actually happened — where contracts were negotiated, where orders were processed, where sales were solicited — not just where the goods traveled.
The re-invoicing structure works by routing both the invoice flow and the money through your Hong Kong company, while goods ship directly from your Asian supplier to your end customer.
Your Hong Kong company's 0% tax position does not automatically protect your personal tax in your home country. Controlled foreign corporation (CFC) rules in France, Germany, the UK, and other jurisdictions can still apply to your share of the profits.
For international traders sourcing products from Asia, one challenge often appears before the first shipment even leaves the factory: how to structure the business efficiently. Payments to suppliers can be slow, expensive, or heavily scrutinised by domestic banks, while corporate tax rates in many countries can significantly reduce already thin trading margins.
This is why a number of importers, exporters, and trading companies use a Hong Kong re-invoicing structure. The structure can simplify cross-border payments and potentially benefit from Hong Kong's territorial tax system when properly implemented.
However, the structure is frequently misunderstood. A Hong Kong company does not automatically qualify for a 0% tax rate. The tax outcome depends on where the profit-generating activities actually take place, how the business is operated, and whether the company can substantiate its position if questioned by the Inland Revenue Department (IRD).
This guide explains how the Hong Kong re-invoicing structure works, why international traders use it, how the offshore profits exemption applies, what the IRD looks for when reviewing an offshore claim, and the personal tax considerations that business owners must understand before implementing the structure.
I founded Statrys after years in Asian sourcing and cross-border trade. We have incorporated over 1,600 companies in Hong Kong. This guide draws on IRD Departmental Interpretation and Practice Notes No. 21 and the patterns we see with international trading clients applying for offshore status — including those whose first claims were denied and why.
Disclaimer: This article provides general information and does not constitute legal, tax, or financial advice. Tax rules and IRD procedures change. Always consult a qualified tax advisor before acting on any content in this guide.
What Is the Hong Kong Re-Invoicing Structure?
The re-invoicing structure uses a Hong Kong company as the trading intermediary between an Asian supplier and an overseas customer. Two flows operate independently.
The goods flow: your supplier ships directly to your customer. The goods may never enter or pass through Hong Kong.
The money and invoice flow: your supplier invoices your Hong Kong company. Your Hong Kong company invoices your customer. All payments go in and out of the Hong Kong entity.
Your Hong Kong company earns the trading margin — the spread between what you pay your supplier and what you charge your customer. That profit sits in the Hong Kong entity.
| Flow | From | To | Through HK? |
|---|---|---|---|
| Goods | Asian supplier (e.g. China, Vietnam) | End customer (US, Europe) | No — direct shipment |
| Purchase invoice | Asian supplier | Your Hong Kong company | Yes |
| Sales invoice | Your Hong Kong company | End customer | Yes |
| Payment from the customer | End customer | Your Hong Kong company | Yes |
| Payment to the supplier | Your Hong Kong company | Asian supplier | Yes |
That last column is where the operational side matters most: paying a Chinese supplier in RMB, or a Vietnamese supplier in VND, from a Hong Kong company account is straightforward with the right provider. Trying to do it from a French, German, or British bank is often not — which is the first problem the structure solves.
The Two Problems It Solves
Before getting to the tax angle, the re-invoicing structure addresses two operational problems that international traders run into when working through a home-country entity.
Problem 1: Payment friction with Asian suppliers
If you are based in France, Germany, or the UK and buying goods from a supplier in China or Southeast Asia, your domestic bank may treat those transfers as high-risk. You may get requests for additional documentation. Transfers may be delayed, held, or refused. This is not a compliance issue with you personally. It reflects how European banks manage exposure to Asian payment corridors.
A Hong Kong trading company with a multi-currency business account can help reduce some of this friction. Hong Kong has long served as a gateway between international businesses and mainland China, with infrastructure well-suited to regional trade. Many Hong Kong business accounts support RMB settlement, which can simplify payments to Chinese suppliers, many of whom prefer to invoice and receive payment in RMB.
The advantage is even greater when the Hong Kong company has access to a multi-currency account supporting Asian currencies. Paying suppliers in their local currency can reduce foreign exchange friction and, in some cases, involve fewer banking intermediaries than routing the same payment through a European bank.
Problem 2: Corporate tax at home
If you are routing trading profits through an entity in France, the UK, or Germany, you are paying 25 to 33% corporate tax on your margins. On a trading business in competitive markets, that often determines whether the business is viable.
Hong Kong's territorial tax system means only profits from activities conducted inside Hong Kong are taxable. If your trading activity is genuinely offshore — contracts negotiated, executed, and managed outside Hong Kong — your Hong Kong company can apply for the offshore profits exemption and pay 0% corporate tax on those profits.
How Hong Kong's Territorial Tax System Applies to Traders
Hong Kong taxes profits on a territorial basis: only income from activities conducted inside Hong Kong is chargeable to profits tax. Profits from activities outside Hong Kong fall outside the scope of the charge entirely.
For corporate entities, the standard profits tax rate is 16.5%. Under the two-tiered system, the first HKD 2 million of assessable profits is taxed at 8.25%, with everything above that at 16.5%. Only one entity in a connected corporate group can use the two-tiered rate.
A trading company whose buying, selling, and management activities all happen outside Hong Kong can apply for an offshore profits tax exemption. If the IRD accepts the claim, those profits are assessed at 0%.
The mechanism is straightforward: the Hong Kong company is incorporated in Hong Kong, but conducts its actual business operations from elsewhere.
For a complete guide on how to file the offshore claim, what records you need, and what to do if the claim is denied, see our Hong Kong Offshore Tax Exemption guide.
What Makes a Trading Company's Profits "Offshore"? The Operations Test
The IRD applies an operations test when assessing an offshore claim. The guiding principle, established in case law, is that it looks at "what the taxpayer has done to earn the profits in question, and where they have done it."
For trading companies, IRD Departmental Interpretation and Practice Notes No. 21 identifies the contracts test as the primary factor: where were the contracts of purchase and sale negotiated and concluded? But the IRD also examines the broader picture of trading activities.
| Trading Activity | What the IRD Looks At |
|---|---|
| Procurement | Where were suppliers identified and purchase orders placed? |
| Contracting | Where were purchase and sale contracts negotiated and signed? |
| Sales solicitation | Where were customers contacted and orders confirmed? |
| Order processing | Where were orders tracked, processed, and fulfilled? |
| Shipping arrangements | Where were logistics and freight arrangements made? |
| Payment | Where were payments received and initiated? |
The IRD presumes that trading profits are Hong Kong-sourced if either the purchase or the sale is "effected" in Hong Kong. "Effected" means negotiated and concluded. If you are in Hong Kong when you agree terms with your supplier, or when you accept a purchase order from your customer, those transactions are HK-effected — and the related profits are taxable in Hong Kong.
The implication: the re-invoicing structure routes money through your Hong Kong company. Whether those profits qualify as offshore depends on where the underlying trading activities actually happen. Most international traders using this structure operate from their home country or a third location — not from inside Hong Kong. That is a strong position. But it must be documented, and the activities must be real.
Important: The IRD does not require a physical office or staff outside Hong Kong. What it requires is that your profit-generating trading activities — contracting, sourcing, processing orders — take place outside Hong Kong. Working remotely from your home country qualifies. Visiting Hong Kong for a board meeting may not constitute Hong Kong-based trading activity, as long as you are not signing commercial contracts while there.
The FSIE Regime: What Changed and Does It Affect You?
The Foreign-Sourced Income Exemption (FSIE) regime, introduced in January 2023 and expanded in January 2024, is a separate tax framework from the standard offshore profits exemption. It applies to four categories of passive foreign-sourced income received by MNE entities (companies that are part of a group operating across more than one jurisdiction):
- Dividends
- Interest
- IP income
- Disposal gains (expanded in January 2024 to cover all asset disposals, not just equity interests)
Active trading income is explicitly outside FSIE. The regime carves out disposal gains arising from, or incidental to, carrying on a business as a trader. Trading profits — the margin from buying and selling goods — are active income. They are assessed under the standard offshore profits test, not FSIE.
FSIE becomes relevant if your Hong Kong company starts earning passive income alongside its trading profits: dividends from a subsidiary, interest from intercompany loans, or gains from selling a business unit. If you have a holding structure above your trading entity, get separate advice on how FSIE applies to the passive income flows.
Note: The FSIE regime may evolve. Verify current requirements with a qualified tax advisor before your next annual filing.
The Part Nobody Tells You: Your Personal Tax Situation
Your Hong Kong company pays 0% tax on qualifying offshore profits. That does not mean you personally pay no tax on those profits.
Several mechanisms in your home country's tax law can attribute Hong Kong company profits back to you as a resident shareholder, even if those profits stay inside the Hong Kong entity and are never distributed to you. Here are the main ones to understand.
Controlled Foreign Corporation (CFC) rules
Many countries have CFC legislation that allows their tax authorities to tax the undistributed income of foreign-controlled companies in the hands of resident shareholders. The rules differ significantly by country.
| Jurisdiction | Has CFC Rules? | What Income Is Covered | Threshold |
|---|---|---|---|
| France | Yes (Art. 209 B CGI) | Broadly, all profits (with exemptions) | Control >50%; foreign tax < ~15% |
| United Kingdom | Yes (TIOPA 2010) | Diverted profits and passive income; genuine active trading generally not caught (with exemptions) | Control >50%; foreign tax <75% of equivalent UK tax |
| Germany | Yes (AStG §7) | Passive income only; active trading may be excluded | Control >50%; foreign tax < 15% |
Double Taxation Agreements (DTAs)
Hong Kong has DTAs with over 50 jurisdictions. DTAs define where specific income is taxable and can protect against double taxation. Your home country's Controlled Foreign Corporation (CFC) rules may still apply. CFC rules are anti-tax-avoidance laws that allow a country to tax certain income earned and retained in a foreign company
Common Reporting Standard (CRS)
Hong Kong participates in the OECD Common Reporting Standard. Your Hong Kong business account information, such as balances and interest, is reported automatically to the tax authority in your country of residence. Tax authorities in France, Germany, the UK, and most EU countries receive this information. This is not a reason to avoid the structure. It is a reason to be transparent with it.
Transfer pricing
If your Hong Kong company has related-party transactions — buying from a company you also own, paying management fees to a related entity, licensing IP to yourself — transfer pricing rules require those transactions to be priced at arm's length. Artificial pricing to shift profits into the Hong Kong entity creates risk with both the IRD and your home-country tax authority.
Bottom line: The Hong Kong company's 0% offshore tax rate is real and legal. Your personal tax obligation as a resident of France, Germany, the UK, or elsewhere is a separate question that depends on your specific circumstances. Get country-specific advice before you structure.
Making It Operational: The Full Setup
The re-invoicing structure requires two components: a Hong Kong company and a business account that can handle multi-currency payments.
The Hong Kong company
You need the Hong Kong company incorporated, with a registered address and a company secretary. Annual compliance filings — profits tax return, annual return — are mandatory each year. Incorporation takes around five business days online, with no requirement to travel to Hong Kong.
The business account
Your Hong Kong company needs to receive payments in USD, EUR, GBP, or other currencies from your customers, and pay suppliers in RMB (for Chinese suppliers), THB, VND, or other Asian currencies. The ability to convert between currencies at a tight spread matters directly to your margins.
Statrys handles both. We have incorporated over 1,600 companies in Hong Kong, and our multi-currency business account supports inbound payments in 11 currencies and outbound payments to over 100 countries. FX fees start from 0.1% based on real-time mid-market rates. 96% of clients open their accounts within 3 business days. Learn more about our Hong Kong company registration.
*Statrys is not a bank. It is a licensed Money Service Operator (MSO) in Hong Kong that provides business payment services and multi-currency account solutions
Why the account matters: A Hong Kong company without a capable business account is structurally correct but operationally broken. If you are paying a Chinese supplier in RMB through an account that charges 2 to 3% on the conversion, a significant portion of the tax benefit disappears in FX fees. The two components work together.
Is This Legal? What to Do (and Not Do) to Keep It That Way
Yes. The re-invoicing structure is legal. The IRD also publishes a note — DIPN No. 21 — that specifically addresses re-invoicing structures.The mechanism — taxing only income from activities conducted inside Hong Kong — is a foundational feature of Hong Kong's tax system, not a workaround.
What creates problems is not the structure itself but how it is run.
| What Can Go Wrong | Why It Matters |
|---|---|
| Contracts negotiated or signed in Hong Kong | Converts offshore trading activity into Hong Kong-sourced profits. One trip where you sign a commercial deal in person can affect the offshore claim for that transaction. |
| No documentation of offshore activities | The IRD requires evidence of where your trading activities happened. Emails, contracts, travel records, and order logs all count. Missing documentation means a missing claim. |
| Running the business from Hong Kong | If your director lives in Hong Kong, works from Hong Kong, and manages trading operations from Hong Kong, the offshore claim will not hold. The test is substance, not structure. |
| Transfer pricing inconsistencies | Related-party transactions not priced at arm's length attract scrutiny from both the IRD and your home-country tax authority. |
| Not filing the claim annually | The offshore exemption is not a one-time approval. It is filed each year with your Profits Tax Return. Miss a year and you lose it for that assessment period. |
The founders who maintain a clean offshore status long-term do not do anything complicated. They document where they work, sign contracts in the right locations, and file consistently.
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FAQs
What is a re-invoicing structure, and is it legal in Hong Kong?
A re-invoicing structure is a trading arrangement where a Hong Kong company acts as the intermediary between an Asian supplier and an overseas customer. Goods ship directly from the supplier to the customer; all invoices and payments flow through the Hong Kong entity. It is entirely legal. Legality depends on the trading activities genuinely happening outside Hong Kong — not on the corporate structure alone. The IRD publishes guidance on offshore profits claims (DIPN No. 21), and the structure operates within Hong Kong's territorial tax framework.
Does my Hong Kong company automatically pay 0% tax if I trade internationally?
No. The 0% rate applies only to profits from activities genuinely conducted outside Hong Kong — and only if you apply for the offshore exemption in your annual Profits Tax Return. There is no automatic exemption. The IRD assesses each claim on the facts: where were your contracts negotiated, where did your trading activities happen, and can you prove it with documentation? If either your purchase or your sale was effected inside Hong Kong, the related profits are taxable at the normal Hong Kong corporate tax rate (8.25% - 16.5%)
What does the IRD look at when assessing an offshore claim for a trading company?
The IRD applies the "operations test" set out in DIPN No. 21. For trading companies, the primary factor is where contracts of purchase and sale were negotiated and concluded. But the IRD also looks at where sales were solicited, where orders were processed, where shipping was arranged, and how payment was managed. If any of these activities happened inside Hong Kong, the related profits may be treated as HK-sourced. Documentation — contracts, emails, travel records, order logs — is what turns an offshore claim from a filing position into an approved one.
Does the Hong Kong re-invoicing structure affect my personal tax in my home country?
It can. Your Hong Kong company's 0% tax position is a corporate-level outcome. Your personal tax position as a resident of France, Germany, the UK, or elsewhere depends on your home country's rules.
What is the difference between the offshore profits exemption and the FSIE regime?
The offshore profits exemption applies to active trading income — profits from buying and selling goods where the trading activities happen outside Hong Kong. The Foreign-Sourced Income Exemption (FSIE) regime applies to passive income received by MNE entities: dividends, interest, IP income.
