My Hong Kong company claims its profits are offshore. Do I still need an audit?

Two separate things

• Audit: every Hong Kong company needs an audit unless it is dormant (ss.394, 447). Where profits arise has no effect.
• Offshore claim: a tax claim made in the profits tax return.

What IRD's notes require

• Any offshore claim must be accompanied by a statement of reasons that can be backed by evidence on request (Note C1).
• Details of profits or income claimed to have an offshore source, and the related direct and indirect expenses, must be provided (Part 1, Note 3(i)).
• The audited financial statements must be submitted with the return for companies with gross income, except dormant companies.

How the audit helps (and what it does not do) The audit tests revenue, costs and records. It does not decide whether profits are offshore; that is a tax determination. Auditors may ask for contracts and flow-of-work records because they affect revenue and disclosure.

Practical tips

• Keep contracts, correspondence, shipping and payment records showing where operations are carried out.
• Tell the auditor about the offshore position when the audit starts.
• Take tax advice before claiming; this answer does not cover how the claim is assessed.