Subjected Taxes For eCommerce Business in Hong Kong

June 7, 2023

E-commerce is becoming more popular in Asia, and Hong Kong is considered the best place to start an online business. By 2023, the e-commerce market in Hong Kong is expected to reach US$73.1 billion, making it a growing powerhouse that offers boundless opportunities to any company, seeking success in this field. In the eCommerce industry, technology and automation play essential roles and produce considerable value, in contrast to the established company setting, which relies primarily on manual tasks and physical activities.

Because of its relatively low tax rate, Hong Kong still remains one of Asia and the Pacific’s most attractive marketplaces. Under Hong Kong’s tax system, the primary types of income tax payable are the Profits Tax, the Salary Tax, and the Property Tax. So, how does the tax treatment for e-commerce business in Hong Kong work? This guide will cover everything you need to know about e-commerce taxation in Hong Kong and the types of tax for your e-commerce business.

E-commerce Taxation in Hong Kong

Statista reports immense development in Hong Kong’s e-commerce sector in recent years. The estimated size of the e-commerce business in Hong Kong in 2025 was $11,308.8 million. The rise of online trade may be attributed to both technological progress and changing customer preferences. But before you decide if you want to set up your online business in this region, you must first understand e-commerce taxation to make an informed decision.

Understand Hong Kong Tax System

Tax returns must be submitted to the Hong Kong Inland Revenue Department (IRD) every financial year, which spans from 1 April to 31 March. Hong Kong follows the territorial concept of offshore taxes, meaning that only Hong Kong-sourced earnings are taxed whereas those obtained from other countries are not. Furthermore, the IRD does not levy taxes on things like capital gains, dividend income, interest revenues, hotel payments (via the Hotel Accommodation Tax), sales, value-added, or withholdings.

Profit Tax – Residents and non-residents alike must comply with Hong Kong’s territorial earnings taxation rules for individuals, businesses, partnerships, and trusts. The two-tiered tax structure in this jurisdiction applies to their earnings from any commercial activity conducted in or sourced from Hong Kong.
Salary Tax – The Hong Kong tax system for salary is progressive. In Hong Kong, the tax rate rises from 2%, 6% and 10% to 14% and 17% for every 50,000 HKD in net chargeable income. As with profits tax, however, personal income tax is only collected from Hong Kong-based employees for work performed inside the territory.
Property Tax – The property tax is levied on the income generated by the rental of real estate and property structures in Hong Kong.

General Rule of Taxation in Hong Kong

Some predominant taxation rules apply to all types of businesses. Section 14 Inland Revenue Ordinance (IRO) lays forth the provisions in detail. According to them, For earnings to be subject to tax:

The individual in question must conduct a business, practice a trade, or engage in an occupation in Hong Kong
The gains that are subject to the tax must have been earned by the person’s trade, profession, or business that is conducted in Hong Kong
The third requirement is that the gains “arise in or are derived from Hong Kong”.

Therefore, it seems that Hong Kong’s tax system can easily discern between local and offshore earnings by merely determining the geographic source of income.

Tax Rules for E-commerce in Hong Kong

By 2025, an estimated 83.8% of Hong Kong residents would be utilizing e-commerce platforms, a startling increase from the 73.1% who used such services in 2019. Hong Kong is a natural choice as a target market for online retailers. In light of Hong Kong’s advantageous location close to both China proper and the rest of the world and its relatively low tax rate, it’s easy to see why you would be considering relocating your operations there.

However, there are complications surrounding the origin of revenues in e-commerce that might make applying the general tax rule tricky. Depending on the specifics of the transaction, a company’s physical location in a certain region may not be necessary if it takes place online.

In certain cases, the IRD will not be able to trace a company’s success back to its employees, its headquarters, or its funding source. Despite these obstacles, the IRO does not include rules that address the unique aspects of e-commerce business in Hong Kong. Consequently, the provisions outlined in IRO Section 14 must be observed.

Subjected Taxes for E-commerce Business in Hong Kong

The regulatory framework for e-commerce taxation in Hong Kong is lacking at present. As a result, an eCommerce enterprise is subject to the same tax regulations as the traditional forms of business.

In accordance with Hong Kong’s territorial source system, the eCommerce revenue is liable to profits tax if both the operation of the eCommerce firm and the consequent commercial profits are sourced from Hong Kong. Let’s see if the following applies to e-commerce taxation.

Profit Tax – This type of tax for e-commerce is levied on profits generated by a Hong Kong company. The firm does not have to be operated in the region but the profits are sourced by selling products or services to consumers in Hong Kong.
Sales Tax – There is no sales tax levied on e-commerce businesses in Hong Kong. Apart from this, the government also does not impose VAT, service tax or GST.

Understand Types of Tax For E-commerce

Hong Kong eCommerce company revenue source or its taxability is dependent on the facts and circumstances of each business. Conflicts here between the Inland revenue department and taxpayers are common since there are no hard and fast regulations on taxes. If your e-commerce business serves customers in more than one country, you should investigate the tax regulations in those regions also to avoid legal implications. However, in Hong Kong, e-commerce taxation is business-friendly. Read on to know why.

Sales Tax Vs GST

When a retailer sells a product, he collects sales tax for it from the consumer and transfers it to the government. This works differently in several countries. Goods and Services Tax (GST) is another kind of tax. It is a kind of indirect tax, imposed on the consumer, who is often responsible for paying it together with the purchase price. However, there is no Goods and Services Tax (GST) or sales tax in Hong Kong.

Sales Tax for E-commerce Transaction

The GST or sales tax is not required to be included in online purchases made in Hong Kong. However, it is your responsibility to make sure that your consumers are aware of any local tax requirements. For example, if a customer in the United States buys anything from your Hong Kong e-commerce site, they may be subject to sales tax at the point of purchase.

Profit Tax

Profit origination, like trade or business identification, is a matter of rigorous scrutiny. Moreover, because of the dispersed nature of e-commerce transactions, it might be difficult to determine the origin of different amounts of money. Specifically, it entails determining:

The operational activities that lead to the profits
The location of e-commerce activity

E-commerce business in Hong Kong is diverse, thus the IRD’s variables depend on the transaction and firm. However, they are primarily concerned with determining the location of the individual’s revenue transactions or operations (as opposed to the person’s pre-transactional activity).

How to Calculate Tax for E-commerce Businesses in Hong Kong?

In Hong Kong, the amount of taxable profits are determined by the assessable income of the firm. The taxable income of your firm may be calculated with the help of this formula. For this, you need to determine the net income of your e-commerce business in Hong Kong.

Taxable Income = Net Assessable profits – non-assessable profits – Business costs (eligible) – unused loss – capital allowance

With the taxable amount derivative you get, you must apply 8.25% – 16.5%, if the profits are assessable and 7.5% – 15% in the case of unincorporated firms.

Tax Treatment for E-commerce Business in Hong Kong

The E-commerce Businesses in Hong Kong benefit from one of the most favorable tax regimes worldwide since they are only required to pay taxes on their earnings made inside the territory. The Hong Kong tax system may provide you with these. In particular:

Depending on a company’s taxable revenue, the rate may range from 8.25% (on the first 2 million HKD) to 16.5%.
There is no tax on capital gains.
No tax on Dividends
No dividend or interest withholding tax
Zero percent VAT/sales tax
There is no tax imposed on money earned outside of Hong Kong.

The tax treatment also depends on the modes of operation of your e-commerce activity and the business nature. Read on to know why the following factors are significant in determining e-commerce taxation.

Carrying on E-commerce Businesses in Hong Kong

Formerly, the IRD believed that the sheer existence of a host in Hong Kong was not typically considered to be managing operations even though he could carry out multiple business activities. When determining whether a person is engaged in an e-commerce business in Hong Kong, the IRD will use an “entirety of the facts” approach and look at a variety of variables including the location where the contracts, services and payments were made. To put it in simple terms, If the core operations of the company are undertaken in Hong Kong, the IRD will consider the eCommerce business to be conducted in Hong Kong.

Core Operations

So what are considered core operations for an e-commerce business in Hong Kong? Any activity involving the following processes is considered core operations.

Publicity for Networks
Operation of the network infrastructure,
Establishment of relationships between consumers and billing,
Problem-solving activities, assessment and
Control and evaluation functions.
Logistics
Purchase and sales of goods and services

Source of E-commerce Business Income in Hong Kong

Considering that most eCommerce business processes are highly automated with extensive use of technology like servers, it is not always easy to trace the origin of the company’s revenue. According to the IRD’s DIPN 39, just because a transaction is automated and processed by a server in a country other than Hong Kong does not mean that the revenue was also generated there.

In addition to the physical spot of the server and the electronic work performed, the IRD will also investigate the location of the essential business operations and supporting activities that are necessary to facilitate e-commerce. When figuring out where an income eligible for e-commerce taxation came from, non-automated processes like logistics, marketing, sales and post-sale services are also included.

What is DIPN 39 and How Will It Affect Your E-commerce Business?

Although Hong Kong’s tax system has traditionally been praised for its clarity and ease of use, it has run into some challenges in recent years due to the expansion of the city’s e-commerce sector. The Hong Kong Inland Revenue Department (“IRD”) updated their Departmental Interpretation and Practice Notes No. 39 (“DIPN 39”) on 27 March 2020 to reflect recent developments in the taxation of online retailers in Hong Kong. Whenever a payment is made in an electronic commerce transaction for the use of, or the right to use, a copyright, then the transaction will be treated as a royalty under the guidelines established in DIPN 39. The general transfer pricing regulations and arm’s length standards outlined in DIPN 39 are applicable to e-commerce transactions in the same way that they apply to transactions involving tangible assets. In addition, the interpretation of the profit-making operations and the physical location of those operations are emphasized by DIPN 39.

With the introduction of DIPN 39, the IRD has provided much-needed clarity to the e-commerce and digital asset industries, paving the way for their continued development. Startupr HongKong is a certified public accounting firm in Hong Kong, and we are delighted to assist you with all of your auditing and taxation requirements.

Get Experts Help in filing E-commerce Taxation in Hong Kong!

Hong Kong is probably the best region to set up your online store, given the liberal e-commerce taxation it offers. However, it can become an exhaustive process to gather essential documents and file your taxes every year. This is crucial because accuracy is of prime importance.
We, at Startupr, can help you achieve that with our expert financial professionals. We can generate prompt financial statements, maintain your e-commerce business accounts and offer you timely business insights about your company. For quick and legally compliant account filing services, call us now!