Why set up Limited Company in Hong Kong ? --- Story Two

How can pay 0 tax in Hong Kong - Offshore operation tax exemption

Background

1. Mr. Mike  originally buying garments from China and selling to Italy using his own Italy  company as the middle trading firm (I Ltd);
2. Trading profit of Euro 20,000 is subject to French tax rate – can be as high as 35% ;
3. Mr. Mike controls the business remotely – no need to maintain operation base in China or Italy. 

New Way

1. Mr. Mike setup a Hong Kong company, H Ltd;
2. H Ltd becomes the middle trading company – buying from China and selling to Italy;
3. Garments still shipping directly from China to Italy;
4. Selling and purchase at same price as before;
5. Location of operation – Mr. Mike still operating the business – without maintaining operating office in Hong Kong, China and Italy

Benefit

1. Profit of Euro20,000 will be profit of H Ltd;
2. As H Ltd maintains only register address in Hong Kong, but not operating office. And also fulfilling offshore operation test, Hong Kong taxation department (Inland Revenue Department) (IRD) approves the “non-HK source” application;
3. There is saving of 35% in profits tax.

Note : Mr. Mike still needs to fulfill personal income tax filing to Geramn government – in order to assess overall tax saving scenario.

Note : H Ltd should fulfill operation test, which include below :

1. No operation office maintaining in Hong Kong (this is different from register address);
2. No staff hired and working in Hong Kong  
3. No customers / clients from Hong Kong
4. No suppliers from Hong Kong
5. Income contract not negotiated or concluded in Hong Kong
6. Goods not entering HK
   a. trans-shipment is ok

              b. maintaining continuous cargo stock in HK is not fine.