In this course · 5 of 9
Course 3
Profits tax for online sellers
9 lessons · 9 min
- 1Is there VAT or sales tax on online sales in Hong Kong?
- 2What profits tax rates apply to an online store in Hong Kong?
- 3How and when does an online seller file profits tax returns?
- 4Can a new online store carry forward its trading losses?
- 5Does server location decide whether e-commerce profits are taxed in Hong Kong?
- 6What evidence does the IRD want for an offshore profits claim for an online store in Hong Kong?
- 7Can a Hong Kong trading company claim offshore profits if it buys in mainland China?
- 8What penalties apply if an online seller files an incorrect or late profits tax return?
- 9How can a Hong Kong company get a tax residency certificate for Amazon or other platforms?
The short answer
No. The Inland Revenue Department (IRD) says in Departmental Interpretation and Practice Notes No. 39 (DIPN 39) that the location of a server alone does not decide where e-commerce profits arise. It looks at the core operations that produced the profit and where they were carried out.
DIPN 39 (revised March 2020) deals with the digital economy and e-commerce. On the question of servers, the IRD's position is that a server mainly provides automated links between buyer and seller, for example to show products, take orders, deliver digital content or process payments. These functions are weighed against the core operations needed to make the transactions happen, which are done by people, such as setting up and running the virtual shop, managing suppliers and making decisions.
In the IRD's view:
- A server outside Hong Kong does not by itself mean the profits are offshore.
- A server is not treated as an agent. Neither is a hosting provider that only operates a server.
- If a Hong Kong resident does all core operations in Hong Kong except for using a server abroad, the profits are fully taxable in Hong Kong.
The general rule is to ask what operations produced the profit and where they took place. Using an overseas web host, Shopify or a cloud service does not move the source offshore.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), s.14
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
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