Does selling to mainland China create mainland tax for a Hong Kong company?

A Hong Kong company that sells to mainland customers from Hong Kong, with no presence on the mainland, is generally taxed on the Hong Kong source basis here. Mainland tax can arise where the company has a taxable presence there.

The Hong Kong and mainland double taxation arrangement uses the idea of a permanent establishment, which broadly covers a fixed place of business and in some cases staff acting on the company's behalf. Examples that commonly raise the question are a representative office, a warehouse that is more than storage, staff who negotiate or conclude contracts, and services provided in the mainland for more than a set period.

DIPN 39 discusses permanent establishments for e-commerce, including the point that a server can be a permanent establishment in some cases, and notes that preparatory or auxiliary activities do not by themselves create one.

The mainland authorities apply their own tax laws, including VAT and enterprise income tax, so a Hong Kong seller with real mainland operations should take advice in the mainland as well.