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E-commerce business: Confused about profit taxes, etc?

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  1. #1

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    E-commerce business: Confused about profit taxes, etc?

    I live in Canada and will be moving to Hong Kong between April to August. This move will also coincide with a period in which I will be opening a new business.

    I've been researching a bit about opening businesses in Hong Kong and have found profit taxes to be a bit confusing. It seems Hong Kong and Canada vary quite differently in these areas.

    From what I've read, I am only liable to pay profit taxes on anything sold deriving from Hong Kong. As an e-commerce business, this means a majority of my consumers will actually come from abroad.. It also states that even if I remit taxes I have earned abroad, I will liable to pay anything. Is my understanding correct on this assumption?

    Another issue I've come across is this. As a sole-proprietorship/partnership business, are we only liable to pay profits taxes and not salaries tax?

    Not like this will mean much, but I have permanent residency in Hong Kong if this applies to anything.

    Any help is recommended. Be great to get some help from someone whose been through it. Furthermore, can anybody recommend an e-commerce enabled merchant account within Hong Kong?

    Last edited by mr_dimsum; 04-02-2008 at 04:37 PM.

  2. #2

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    Talk to an accountant.

    From what we were told for a very specific situation.

    1) Deal is negotiated when you're NOT in HK.
    2) Work is done when you're NOT in HK.
    3) Invoicing is done outside of HK

    So, if you're sourcing the product in Hong Kong and shipping overseas, you're still liable for taxes.

    Regardless, this is very much an area where you should get an accountant to give you some advice on the specifics. You'll have to explain to them the whole process you go through.


  3. #3

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    The principle of Hong Kong income tax is that it is a tax on income that has its source in Hong Kong rather than a tax based on residence. Income sourced elsewhere, even remitted to Hong Kong, is not subject to Hong Kong profits tax at all. Consequently, if a Hong Kong companys trading or business activities are based outside Hong Kong, say in Europe, no taxation will be levied.

    The factor that determines the locality of profits from trading in goods and commodities is generally the place where the contracts for purchase and sale are effected. Effected does not only mean that the contracts are legally executed. It also covers the negotiation, conclusion and execution of the terms of the contracts. If a business earns commission by securing buyers for products or by securing suppliers of products required by customers, the activity which gives rise to the commission income is the arrangement of the business to be transacted between the principals. The source of the income is the place where the activities of the commission agent are performed. If such activities are performed through an office in Hong Kong, the income has a source in Hong Kong.

    In one line: Your going to be in Hong Kong carrying out your business, you will be subject to tax. On the plus side, its only 17%!


  4. #4

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    Talking

    So I just talked to my cousin whom is an accountant in Hong Kong and he verified some things for me. Most of things you said, KnowItAll, is spot-on.

    If I can prove that I source my goods from outside of Hong Kong, I am eligible to be exempt from paying profit taxes if the following conditions are also met:

    - I do not do any local sales
    - I do not source any products from within Hong Kong
    - He also spewed some other stuff out, but that stuff most certainly got miscommunicated.

    He says the IRD, by default, when you're opening a business assumes you will be doing local business, so you will have to prove your case and show them that you absolutely do nothing, rather in Hong Kong asides from shipping.

    Some of this may have been lost in translation, as his English is not that good.. But I think the sentiment stays the same and it seems to be on par with what others have provided.

    Last edited by mr_dimsum; 04-02-2008 at 05:41 PM.

  5. #5

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    DanielandHayley,

    Thanks for your informative reply. You're basically saying no matter what I do pretty much, granted that I reside currently in Hong Kong, any process upon which I do will in turn, essentially makes me liable to pay profit taxes?

    17% isn't much at all, that's for sure.. But taxes are taxes and they are of concern. I will need to ask my cousin on this a bit more an ask him to clarify.. Because I indeed, will be shipping out my products from within Hong Kong even though no local sales will be done.


  6. #6

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    Yes, If you are running the business and your running that business from Hong Kong, then no matter where your products are from, or who/where your customer's are located, you will not be able to claim offshore for profits tax.

    Your cousin is correct in that the tax department treat all income as taxable until you proove otherwise. Guilty until proven innocent approach.

    From what I understand of your business model, you will not be able to claim offshore.

    You'l never avoid tax (legally) completely, and you won't find a much better business environment in terms of taxation than Hong Kong...17%! - don't be greedy!


  7. #7

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    Is there anything specific to e-commerce businesses that I should be aware of I may be missing out or is poorly documented that may become essential material for me to know in terms of how to manage, operate, or legally abide by in Hong Kong?

    I've been looking around and can't seem to find much, but wanted to take precautions and plan ahead just as I did in Canada.

    Last edited by mr_dimsum; 04-02-2008 at 08:07 PM.

  8. #8

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  9. #9

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    Thanks for the link.. Will definitely take a look at it more in-depth after work.