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The operations test
The operations test
Under DIPN 21 the IRD examines, case by case, where the substantive operations that produced the profit were carried out — where negotiation, contracting, decision-making, performance and risk-bearing sit. Those facts matter more than where the contract was signed, payment made or goods delivered. Each class of profit (trading, services, interest, rents) is tested separately.
FAQ
Profits sourced outside Hong Kong are generally not chargeable, and you may claim offshore treatment in your Profits Tax Return. However, IRD assesses each case on the actual operations generating the profit (DIPN 21) and may review after assessment, including field audits. Substance in Hong Kong (negotiation, decision-making, marketing) can defeat an offshore claim. No result can be guaranteed.
Case-specific decisions differ — book a consultation with our advisers.
The content of this page is general professional information and does not constitute tax, legal or investment advice. For specific cases, please consult a Hong Kong practising accountant or tax adviser, or refer to official publications of the IRD / SFC / HKMA / CR.