Offshore Companies vs. HK Companies Operating Offshore

We often get asked if we can help to set up an offshore company. The short answer is yes. However, the term “offshore company” can imply very different things as you can have a company that has been incorporated offshore usually in an offshore financial center or a company that is operating offshore (for the purpose of this article we will focus on HK companies operating offshore). The difference between the two is substantial hence we’ve decided to write this article to help clarify what they both mean and to give a quick overview as to why some people might consider them as options.

Offshore Companies

An offshore company usually refers to a company incorporated in countries commonly considered as “tax havens” such as the British Virgin Islands, the Cayman Islands, the Seychelles, etc. The favorable tax conditions in these offshore jurisdictions is an obvious plus, but another reason some might consider setting up in these countries is that shareholder and director information is not made public. Despite the benefits, however, nowadays, due to the implementation of the Common Reporting Standard, it can be quite difficult if not impossible to open a bank account in HK for companies set up in these regions.

HK Companies Operating Offshore

On the other hand, you can have a company incorporated in Hong Kong that operates offshore i.e. its business activities are carried on outside of Hong Kong. Generally, people choose this type of set up in order to take advantage of Hong Kong’s territorial taxation system which means tax is charged on local income only, that is to say, profits derived offshore are not taxed. It’s important to note however that offshore status is not automatic; you must apply for it. For more details on how to apply, please read our articles Hong Kong Taxation System: How To Apply For Profits Tax Exemption? And Tax Exemption At A Glance.

Know What You Need

So, as you can see, if you are considering either of the above, it is important to understand what you need to avoid any costly mistakes when setting up. While now you have a better understanding of what it is you need you can properly communicate what you actually want. You can also better understand what people are referring to while some may even perpetuate the confusion between the 2 options, not to mention that they tend not to explain properly the consequences of each option especially in terms of tax and banking.

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