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Buying stocks with Hong Kong limited company while maintaining offshore status

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mikemcd

New member
Jan 28, 2021
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#1
Hi everyone,

I've recently opened an Interactive Brokers account with my Hong Kong company and I’ve started buying stocks to get some returns on the cash instead of keeping it in Airwallex getting 0%.

I bought some HK-listed stocks but now I worry if this could potentially break the offshore status? Anyone with experience in this? Should I use a broker outside Hong Kong?

Thank you!
 
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#2
Yes , check "Profits from the purchase and sale of listed shares and other listed securities".
Treatment of other profits
Some examples of the tests used to determine the source of the main types of other business profits are as follows
ProfitsTax liability in Hong Kong
Rental income from real property
Taxable if the property is located in Hong Kong

Profits derived by an owner from the sale of real property
Taxable if the property is located in Hong Kong

Profits from the purchase and sale of listed shares and other listed securities
Taxable if the stock exchange where the shares or securities in question are traded is located in Hong Kong

Where the purchase and sale took place over-the-counter, taxable where the contracts of purchase and sale are effected in Hong Kong

Profits accruing to a business (other than a financial institution) from the purchase and sale of unlisted shares and other unlisted securities
Taxable where the contracts of purchase and sale are effected in Hong Kong

Service fee income
Taxable if the services which give rise to the payment of the fees are performed in Hong Kong

Royalties received by a business
Taxable if the licence or right of use is acquired and granted in Hong Kong

Royalties on intellectual property received from Hong Kong by a non-resident
Taxable if the intellectual property is used in Hong Kong

For royalties received or accrued on or after 25 June 2004, if the intellectual property is used outside Hong Kong, taxable if the royalty payment is deductible in ascertaining the assessable profits of the payer under profits tax

Interest accruing to a business (other than a financial institution)
Taxable if the lender provides the funds in Hong Kong to the borrower
 
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#3
You could have used a Cyprus company to trade instead and any trading would be exempt from taxation by default, without recourse to any such rules.
It could be the case that you re-domicile the company and keep the current arrangements or you set up a new one from scratch. Let me know if I could be of help.
 
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#4
CyprusLawyer101 said:
You could have used a Cyprus company to trade instead and any trading would be exempt from taxation by default, without recourse to any such rules.
It could be the case that you re-domicile the company and keep the current arrangements or you set up a new one from scratch. Let me know if I could be of help.
Click to expand...
Hong Kong allows only inward re-domiciliation
 
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#6
So it would have been better for OP to setup a Cyprus company for this purpose? I assume there is less privacy in Cyprus compared to Hong Kong companies?
 
#7
mikemcd said:
Hi everyone,

I've recently opened an Interactive Brokers account with my Hong Kong company and I’ve started buying stocks to get some returns on the cash instead of keeping it in Airwallex getting 0%.

I bought some HK-listed stocks but now I worry if this could potentially break the offshore status? Anyone with experience in this? Should I use a broker outside Hong Kong?

Thank you!
Click to expand...
Hi,

The fact that you've already made investments = risk, but not the end
Buying stock throw (i guess you are linked to IBKR Hong Kong right? check this in you account )

Hong kong ibkr, is a red flag for IRD for review, they could treat this as Hong Kong–sourced activity - especially if trades were managed locally. To reduce risk, I’ll stop using IBHK, transfer assets to an offshore broker, and prepare documentation showing that investment decisions were made outside Hong Kong and are not part of the company’s core business(Demonstrate that investing is not the core business activity of the company).

+ Explain that the investments were one-off or made in error,

If IRD decides that investment = local activity:
Offshore status can be revoked for a particular financial year.
You will have to pay 16.5% tax on income recognized as “sourced in HK”.
The rest of the activities can remain offshore if they were separate.


each case individual, you could be lucky and have no issues at all. Good luck!
 
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#8
plotoffshore said:
So it would have been better for OP to setup a Cyprus company for this purpose? I assume there is less privacy in Cyprus compared to Hong Kong companies?
Click to expand...
Normally yes it would have been a better option though some more info on the individual would be relevant.
In terms of privacy HK and CY are quite similar, with both having a public registry on directors and shareholders while UBOs are held also in a registry but only available to governmental authorities.
 
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#9
All my investments are held through a Cyprus company. It's not the most tax-optimized setup, but it's fairly secure for me, and I haven't had any issues with the tax authorities at least not so far. The company has been running for 5 years.
 
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#10
Hi guys, thank you for your comments. What offshore broker do you guys recommend?

What about doing some basic investment through a regular Hang Seng business account? Would that raise red flags as well @shimo?

Investing is definitely not the main activity of the company. I guess I'll continue business as usual and, in the event that the IRD requests to pay on those profits, I'll just pay.

Thank you!
 
#13
shimo said:
i mean non-HK based
Click to expand...
If you conduct business or investment activities through a broker with a license or office in Hong Kong, the IRD may treat this as local activity, which can result in the loss of your offshore status and a 16.5% tax on profits. To avoid this, use brokers without any presence in Hong Kong, such as TradeStation International (UK) or Swissquote (Switzerland) , both operate remotely and accept offshore companies.
 
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