Question

A Korean Company is considering selling certain electronic gadgets to Hong Kong in an effort to develop its overseas market. His business consultant has advised him of the following options from a commercial perspective:

• Option 1: Sell the products to a wholesaler in Hong Kong who would then market the product and sell to the consumers in Hong Kong

• Option 2: Set up a wholly owned subsidiary in Hong Kong, who would then sell products to consumers in Hong Kong

• Option 3: Set up a branch in Hong Kong for the purpose of selling to Hong Kong consumers

• Option 4: Engage a consignment agent in Hong Kong to sell the products through this consignment agent.

In evaluating the options, the directors of this company would like to take into account the taxation implications of the various options as well and come to you, a tax consultant, for advice.

Required:

Advise the directors as to the Hong Kong profits tax implications in relation to the taxability of profits of the Korean Company, as well as the
profits accruing to the Hong Kong entity involved. You are not required to conclude which option is the best option, as the information provided at this stage is not detailed enough to do a thorough comparison and determination.