Hong Kong SAR

For Hong Kong profits tax purposes, corporate residency is not relevant in determining the taxability of an entity except in a tax treaty context. Under the domestic tax law of Hong Kong SAR, the decisive factors for taxability are (i) whether a corporation is carrying on a trade, profession, or business in Hong Kong SAR, (ii) whether profits are derived from such trade, profession, or business, and (iii) whether profits are arising in or derived from Hong Kong SAR.

However, where it is necessary to determine the corporate residence, such as for the purpose of a comprehensive double taxation agreement/arrangement (CDTA), companies incorporated in Hong Kong SAR and companies that are normally managed or controlled / centrally managed and controlled (with a few exceptions and depending on the provisions of the relevant CDTA) in Hong Kong SAR are generally considered as a Hong Kong tax resident.

Permanent establishment (PE)

The decisive factors for determining chargeability to Hong Kong profits tax are whether a person carries on a trade, profession, or business in Hong Kong SAR and whether Hong Kong-sourced profits are derived from such trade, profession, or business. Whether a trade, profession, or business is carried on in Hong Kong SAR is a question of fact. A non-resident person, including a foreign corporation, having a PE in Hong Kong SAR will be deemed as carrying on a trade, profession, or business in Hong Kong SAR. 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 SAR.

A definition of PE has been incorporated into the IRO as part of the transfer pricing (TP) regulatory regime. For a CDTA territory resident person, the definition of PE follows that in the PE article of the CDTA that Hong Kong SAR 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 2017 Organisation for Economic Co-operation and Development (OECD) Model Tax Convention.

Effective from the year of assessment 2019/20, for a non-Hong Kong resident having a PE in Hong Kong SAR, the TP rules on attribution of profits to a PE in Hong Kong SAR (i.e. TP Rule 2) apply to determine the amount of profits attributed to the PE in Hong Kong SAR (see the Branch income section for more details on profits attribution to a PE and the Group taxation section for more details on the TP rules).