In general, for Hong Kong profits tax purposes, corporate residency is not important in determining taxability of an entity. The decisive factors for taxability are (i) whether a corporation is carrying on a trade, profession, or business in Hong Kong, and (ii) whether the profits are arising in or derived from Hong Kong.
However, where it is necessary to determine the corporate residence, such as for the purpose of a comprehensive double tax agreement (CDTA), companies incorporated in Hong Kong and companies that are normally managed or controlled/centrally managed and controlled (depending on the provisions of the relevant CDTA) in Hong Kong are generally considered as a Hong Kong tax resident.
Permanent establishment (PE)
For Hong Kong profits tax purposes, whether a foreign corporation is carrying on a trade, profession, or business in Hong Kong and the source of profits, rather than whether there is a PE in Hong Kong, are the decisive factors in determining taxability. A non-resident person, including a foreign corporation, having a PE in Hong Kong will be deemed as carrying on a trade, profession, or business in Hong Kong. The profits attributable to the PE will be subject to Hong Kong profits tax if such profits are arising in or derived from Hong Kong.
As a part of the new transfer pricing regulatory regime, a definition of PE has been incorporated into the IRO. For a CDTA territory resident person, the definition of PE follows that in the PE article of the CDTA that Hong Kong has with that territory. For a non-CDTA territory resident person, the definition of PE is specified in the IRO and largely follows that in the PE article of the latest 2017 OECD Model Tax Convention.
Effective from the year of assessment 2019/20, for a non-Hong Kong resident having a PE in Hong Kong, the transfer pricing rules on attribution of profits to a PE in Hong Kong (i.e. TP Rule 2) will apply to determine the amount of profits attributed to the PE in Hong Kong (See the Branch income section for more details on profits attribution to a PE, and the transfer pricing rules respectively).