At International Tax (HK) Co., Ltd., we understand the complex rules and regulations surrounding the taxation of manufacturing businesses in Hong Kong and the Mainland of China. Our team of experienced professionals is dedicated to helping our clients minimize their tax liabilities while ensuring compliance with all applicable laws.

 

Manufacturing businesses in Hong Kong and the Mainland of China must consider the location of their manufacturing operations when determining the source of their profits for tax purposes. The source of profits for a manufacturing business is the place where the goods are manufactured. If goods are manufactured wholly in Hong Kong, the profits arising from their sale are fully taxable there. However, if goods are manufactured partly in Hong Kong and partly outside Hong Kong, such as in the Mainland of China, only that part of the profits relating to the manufacture of goods outside Hong Kong will not be regarded as arising in Hong Kong.

 

In the case of a Hong Kong company that engages in contract processing in the Mainland of China, where the Hong Kong company supplies raw materials and machinery and provides technical know-how, while the Mainland processing enterprise provides factory premises, utilities, and labor, the Department generally accepts an apportionment of profits on a 50:50 basis. However, in the case of import processing, where the manufacturing operations are carried out by a foreign investment enterprise (FIE) incorporated in the Mainland of China and related to the Hong Kong company, the Department holds the view that the profits derived from trading transactions carried out in Hong Kong cannot be attributed to the manufacturing operations of the FIE in the Mainland of China. The source of the trading profits must be attributed to the operations of the Hong Kong company that produced them.

 

If a Hong Kong company contracts with independent subcontractors in the Mainland of China for assembly work, and the Hong Kong company has minimal involvement in the assembly work, then the manufacturing in the Mainland is not regarded as having been carried out by the Hong Kong company. In this case, given that the Hong Kong company does not carry out any manufacturing operations outside Hong Kong, its profits should be fully chargeable to profits tax without any apportionment.

 

At International Tax (HK) Co., Ltd., we have extensive experience advising manufacturing businesses in Hong Kong and the Mainland of China on their tax obligations. We can help our clients navigate the complex rules and regulations surrounding the taxation of manufacturing operations in the region. Our services include:

 

1.      Providing guidance on the determination of the source of profits for manufacturing businesses in Hong Kong and the Mainland of China

2.      Advising on the tax implications of engaging in contract processing or import processing in the Mainland of China

3.      Assisting with the apportionment of profits in cases where it is necessary

4.      Providing advice on the taxation of trading transactions carried out by Hong Kong companies related to FIEs in the Mainland of China

5.      Offering guidance on the tax implications of contracting with independent subcontractors for assembly work in the Mainland of China

We are committed to providing our clients with the highest level of service and expertise to help them achieve their goals while minimizing their tax liabilities.