Hong Kong Regulations

INLAND REVENUE RULES - RULE 5

Profit of Hong Kong branch offices

METHOD OF ASCERTAINMENT AND DETERMINATION OF THE PROFITS OF THE HONG KONG
BRANCH OF A PERSON WHOSE HEAD OFFICE IS ELSEWHERE THAN IN HONG KONG

(1) In this rule-

"permanent establishment" (永久機構) means a branch, management or other
place of business, but does not include an agency unless the agent has, and
habitually exercises, a general authority to negotiate and conclude contracts
on behalf of his principal or has a stock of merchandise from which he
regularly fills orders on his behalf.

"person" (人) includes a company, partnership, or body of persons;

(2) The Hong Kong profits of a person having a permanent  establishment in
Hong Kong, but whose head office is situated elsewhere than in Hong Kong, will
be assessed as follows-

   (a)  where the person keeps accounts for his Hong Kong establishment in
        such a way that his true profits arising in or derived from Hong Kong
        can be readily ascertained from those accounts, his assessment to
        Profits Tax will be computed by reference to the profits disclosed in
        those accounts;

   (b)  where the person's accounts do not disclose the true profits arising
        in or derived from Hong Kong, his tax liability will be computed by
        reference to his total profits wherever made. The same proportion of
        his total profits as his turnover in Hong Kong bears to his total
        turnover shall be treated as profits arising in or derived from Hong
        Kong and shall be taxed accordingly;

   (c)  for the purposes of determining total profits of a person, similar
        adjustments for tax purposes will be made in his accounts as would
        have been necessary had the whole of those profits been liable to tax
        under the Ordinance;

   (d)  where the Assessor is of the opinion that it would be impracticable or
        inequitable to adopt the provisions of sub-paragraphs (b) and (c) of
        this paragraph he may compute the amount of the profits arising in or
        derived from Hong Kong on a fair percentage of the turnover of the
        person in Hong Kong: Provided that the decision of an Assessor under
        this rule shall be subject to objection and appeal in accordance with
        the provisions of Part XI of the Ordinance. (L.N. 101 of 1965; 7 of
        1986 s. 12)

"permanent establishment" (永久機構)

"person" (人)