Amazon & Shopify tax guide series: Hong Kong

Part 3: Hong Kong – the up and coming market

An in-depth series on tax for Amazon and Shopify sellers

Hong Kong is well known as an international trade hub, weaving the best of Western and Asian business and culture into a world-class city. It’s one of the world’s most thriving economies – it ranks as the 29th largest consumer market globally and its ecommerce market is projected to grow dramatically in the next two years.

This guide is number three in a series of tax articles crafted to help Amazon and Shopify sellers understand their sales tax obligations internationally.

We’ve spoken with experts Ray Ng from Unipro Consulting, and Kuen Liu from Athenasia Consulting, to get a comprehensive understanding of the tax system in Hong Kong – so ecommerce sellers in Hong Kong can stay compliant.

In summary, we will cover:

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Tax types in Hong Kong

Unlike other ecommerce markets, with Hong Kong it’s best to start off with what taxes you don’t have to pay. Hong Kong has a relatively simple tax system. Here is a list of the different tax types that are currently at 0%.

  • Capital gains tax
  • Shareholder dividends tax
  • Foreign-sourced income tax
  • Sales tax
  • VAT (or GST)
  • Customs tariffs and excise duty (import and export)

In fact, there is only one tax type that impacts on both international and domestic ecommerce sellers directly – and that is profit tax.

Profit tax

At the end of the 2018/2019 financial year, Hong Kong shifted to a two-tier profit tax system. There are two profit tax rates, depending on how much profit your business makes from sales in Hong Kong.

Ray, founder of UniPro Consulting, works with Amazon sellers to help them set up their companies in Hong Kong, and says he sees the move as a way for the Hong Kong government to support start-ups.

He explains that with the new two-tier profit tax system, a registered business in Hong Kong will have its first two million dollars of profit taxed at 8.25%, and anything above two million will be taxed at a rate of 16.5%.

Previously, all profit was taxed at 16.5%.

“There’s also another option for [domestic] clients, which is called off-shore status. Because Hong Kong has what is called a territorial taxation system, if your profits are not generated from Hong Kong sales, you’re not liable for profit tax,” Ray explains.

“For example, if you’re a locally-based Amazon seller importing goods from China, you only sell to customers in the US, and therefore your income is foreign-sourced, then your company is considered to have off-shore status.”

Personal income tax

Personal income tax is directly related to what your nationality is – or where you’ve chosen to be a tax resident. Generally, you would only pay income tax in the one country – either your home country or where you’ve registered with a tax authority.

If your ecommerce business is registered in Hong Kong, you live in Hong Kong, and you want to pay yourself a salary, the personal income tax rate is roughly 15%.

Personal tax gets a little tricky if the country you are a tax resident in has a global taxation system.

“US passport holders who have set up companies in Hong Kong, and make their money here, might run into double taxation liabilities because of the US global taxation system,” says Ray.

He adds that they would need to pay tax on what had been earned from the Hong Kong company to both Hong Kong’s IRD and the US government.

Hong Kong tax and its ecommerce market

It’s easy to see why Hong Kong makes an attractive market for ecommerce sellers. With a low-rate tax environment, and proximity to the mainland Chinese market, it comes as no surprise that you might be considering expanding your business operations into Hong Kong.

Rays says the number of registered ecommerce companies in Hong Kong is “growing very fast”, and the biggest reason for that is how low the total cost of having a company in Hong Kong is – compared to the rest of the world.

Kuen, head of accounting for Athenasia Consulting, which provides corporate services to international clients, says most of their ecommerce clients run global Amazon businesses and are either foreigners who live in Hong Kong, or Hong Kong nationals who live abroad.

He believes the biggest aspect ecommerce sellers need to consider is international tax – particularly those living abroad where their tax obligations may not be restricted to Hong Kong.

“We realise there is a lot of ideas on the internet saying if you’re living as a ‘digital nomad’, you don’t have to pay tax anywhere – we believe that is a misunderstanding,” says Kuen.

“We suggest to all of our clients to fix their place of tax residency. If you look at it, there are two concerns. One is the corporate side – where you pay your profit tax. The other side is personal – whether you’re liable to capital gains tax.

“In Hong Kong, if a company has a surplus the year after paying all its taxes, they can pay themselves a dividend (which is not subject to tax) but in some jurisdictions outside of Hong Kong, it may be subject to capital gains tax.

“The best way to optimise your personal tax position is to fix your tax residency. So far, our conclusion is, if you’re a resident of nowhere – and not paying tax anywhere – it’s highly likely your place of citizenship will come to you to claim on tax,” Kuen explains.

Tax mistakes – how to stay on top of things

Both tax experts agree that the most common mistake ecommerce sellers make in Hong Kong is not filing their profit tax return on time.

Kuen puts the process simply. “Each year the Hong Kong tax authority IRD will send out a profit tax return. When you receive the return, you’ll need to prepare your accounting – have it audited by a local CPA practice – and then file your return to IRD.”

Hong Kong may have a low-rate tax system, but they do have penalty fees – and the last thing you want is to end up needing to attend a court case, Kuen adds.

Ray says that once you’re liable for tax outside of the jurisdiction you’re familiar with, the best way to stay on top your tax obligations in Hong Kong is to enlist the help of a local accountant to manage local tax.

Ray explains: “For example, we have a typical case with a US client, he uses our service because his company is registered in Hong Kong. We take care of his tax obligations here, but he also has another accountant in the US to handle his global tax filing.”

Why the experts choose A2X

Aside from working with a local Hong Kong accountant, Kuen says Athenasia also recommends the A2X for Amazon integration to all its ecommerce seller clients.

Kuen estimates approximately 10-12% of the company’s 580 clients are Amazon sellers, and they all use A2X to extract their Amazon business information to Xero. He says without A2X, pulling any kind of useful data from Amazon’s reports caused a major headache.

“It’s a really huge time saver…and it’s super simple for accountants to use. Now A2X also has an integration for Shopify, we’re encouraging our clients who are Shopify sellers to use A2X as well.”

Hong Kong – the land of opportunity

Hong Kong is a land full of opportunity – and it’s still easy to ‘set-up shop’ within this low-cost, high-return market, so it’s a great time for Amazon and Shopify sellers to consider how they could grow their operations in that country.

But as a global seller, it’s your responsibility to make sure your business is compliant in all the countries you’re marketing and selling to. Get help from the experts in Hong Kong to register your business, and file your profit tax return correctly and on time, and get advice on what you can do to make your life as an international seller easier.

If you’re wondering what your tax obligations are outside of Hong Kong, here are the other countries we’ve covered in this tax-guide series: