As an international manufacturing company, it is important to ensure tax efficiency in order to maximize profits. Global CPA can assist in navigating the complex tax regulations and ensuring compliance with the Inland Revenue Department (IRD) and tax ordinances in Hong Kong.
One key aspect to consider is the place of manufacture. The source of profits for a manufacturing business is where the goods are manufactured. If goods are manufactured partly in Hong Kong and partly outside Hong Kong, only the profits related to the manufacture of goods in Hong Kong are taxable. The place where the goods are sold is not relevant. Global CPA can assist in determining the appropriate allocation of profits between different locations to minimize tax liabilities.
For manufacturing under a processing or assembling arrangement with an entity in Mainland China, Global CPA can provide guidance on the different types of processing trade and the associated tax implications. For contract processing, the Hong Kong company provides raw materials and machinery without consideration, while the Mainland processing enterprise provides factory premises, utilities, and labor. In return, the Hong Kong company pays a subcontracting charge to the Mainland enterprise. An apportionment of profits on a 50:50 basis is usually accepted, but Global CPA can provide assistance in determining the appropriate allocation based on the specific arrangements.
For import processing, the manufacturing operations are carried out by a foreign investment enterprise (FIE) incorporated in the Mainland, and the Hong Kong company engages in trading of raw materials and finished goods. The Department's view is that profits from trading transactions carried out in Hong Kong cannot be attributed to the manufacturing operations of the FIE in the Mainland, and apportionment of profits is not appropriate. Global CPA can assist in ensuring compliance with this view and minimizing tax liabilities.
For manufacturing by an independent sub-contractor in the Mainland of China, the Hong Kong company may not be regarded as carrying out any manufacturing operations outside Hong Kong if the assembly work is contracted to various contractors in Mainland China and the Hong Kong company has minimal involvement. In this case, the profits should be fully chargeable to profits tax without any apportionment. Global CPA can assist in determining the appropriate treatment of profits and ensuring compliance with tax regulations.
Overall, Global CPA's expertise in tax regulations and compliance can assist international manufacturing companies in maximizing tax efficiency and minimizing tax liabilities. Our team of tax and regulatory experts can provide tailored solutions based on the specific arrangements and circumstances of each company.