Can a Hong Kong trading company claim offshore profits if it buys in mainland China?

Many Hong Kong online sellers source goods from mainland suppliers and sell to customers in other countries, often without goods passing through Hong Kong. The physical flow of goods is not what decides tax.

DIPN 21 says that for a trading profit the operations that matter are usually the purchase and sale contracts, and the place where they were effected is a central factor. Where those contracts are negotiated and concluded matters more than where the shop's website or the goods are.

Examples of points the IRD considers:

• A Hong Kong office that places orders with suppliers and takes customer orders points to Hong Kong.
• Staff based outside Hong Kong who negotiate and conclude both sides may support an offshore claim, depending on the facts.
• Only incidental or preparatory steps in Hong Kong, such as arranging a bank account, carry little weight.

A claim has to be made in the tax return and supported by evidence. Where the same company also has activities in Hong Kong, the profits may be split between sources.