LCQ21: Tax policy relating to e-commerce
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Question:
There are views suggesting that as e-commerce has become a core growth engine for the retail industry worldwide, online shopping has deeply integrated into the daily consumption patterns of local people. According to data from the Census and Statistics Department, the value of local online retail sales in 2025 was provisionally estimated at $35.7 billion, but the failure of the existing tax regime to effectively cover the economic activities arising from the provision of goods and services to local consumers by cross-boundary e-commerce platforms outside the territory has resulted in base erosion and unfair competition between local merchants and merchants outside the territory. In this connection, will the Government inform this Council:
(1) whether the authorities have conducted systematic surveys and compiled statistics on the transaction scale, product categories, major places of origin and growth trends regarding cross-boundary online shopping undertaken by local residents in recent years; if so, of the details; if not, whether the authorities will conduct the relevant survey in the future;
(2) given that under the Inland Revenue Ordinance (Cap. 112), profits tax shall be charged on any person carrying on a trade, profession or business in Hong Kong in respect of the profits arising in or derived from Hong Kong, and the relevant requirement is likewise applicable to transactions involving online shops, e-commerce platforms and the digital economy, whether the authorities have compiled a statistical breakdown of the amount and percentage of profits tax revenue attributable to businesses relating to e-commerce and the digital economy in the past three years of assessment; if so, of the details; if not, whether they will establish the relevant mechanism for compiling the relevant statistical breakdown in the future;
(3) whether the Inland Revenue Department (IRD) has formulated dedicated procedures for verifying business registration and conducting taxation audits in respect of businesses operated through the Internet, so as to ensure that the relevant merchants comply with the requirements under the Business Registration Ordinance (Cap. 310) and the Inland Revenue Ordinance to truthfully declare their income and pay the amount of tax payable; if so, set out (i) the total number of cases involving IRD's spot checks on business registration over the past three years, and the number and proportion of cases involving online shops and e-commerce businesses, and (ii) in such spot checks, the number of cases found with breaches of business registration requirements, tax evasion or omission of any sum from a tax return, and the total amount of additional tax and penalties involved;
(4) whether the authorities have charged profits tax on cross-boundary e-commerce platforms outside the territory that do not have a physical place of business in Hong Kong but provide local consumers with goods or services; if so, set out the amount of the relevant tax revenue for the past three years; if not, of the reasons for that, and whether the authorities will review the applicability of the existing territorial source principle of taxation in the era of the digital economy; and
(5) as the Financial Secretary indicated in public earlier that the Government was conducting a study on an e-commerce sales tax, of the specific scope, current progress and expected completion time of the relevant study?
Reply:
President,
With the advancement of technology, online shopping has integrated deeply into the daily consumption patterns of citizens. E-commerce has become an indispensable part of overall business operations. Hong Kong has all along maintained a simple and low tax system and, based on the territorial source principle, only imposes taxes on business profits, property rental income, and employment income arising in or derived from Hong Kong. Our tax policy applies to all business operation models in Hong Kong, including physical business and e-commerce business.
In response to the questions raised by the Hon Andrew Fan, having consulted the Financial Secretary's Office and the Commerce and Economic Development Bureau, our reply is as follows:
(1) According to the results of the Household Expenditure Survey (HES) conducted by the Census and Statistics Department in 2024/25, the average monthly household expenditure on online purchases was $1,467, representing an increase of 46.5 per cent compared with $1,002 in the previous round of survey conducted in 2019/20. The expenditure on online purchases refers to goods delivered to or services provided in Hong Kong, which are purchased from online platforms.
A non-local brand may have a ".hk" and multiple non-local domains simultaneously and companies registered in Hong Kong may also host their websites outside Hong Kong. Thus, the actual hosting location of platforms and websites cannot be determined solely from their domain names. Therefore, it is difficult for the respondents in the aforementioned HES to provide the accurate source location of their online purchases, and hence a breakdown by source locations of purchases is not available under the survey.
The average monthly household expenditures on online purchases by commodity/service section in the aforementioned two HESs are set out in the table below:
| Commodity/service section | Average monthly household expenditure on online purchases ($) | |
| 2019/20 | 2024/25 | |
| Food | 282 | 247 |
| Meals out and takeaway food# | 195 | 167 |
| Basic food | 87 | 81 |
| Alcoholic drinks and tobacco | 4 | 11 |
| Clothing and footwear | 103 | 94 |
| Durable goods | 176 | 198 |
| Miscellaneous goods | 101 | 122 |
| Transport* | 171 | 451 |
| Miscellaneous services^ | 164 | 340 |
| Others | 1 | 5 |
| All sections | 1,002 | 1,467 |
Note 2: Figures may not add up to the respective totals due to rounding.
#For example, online purchases of restaurant dine-in services and takeaway.
*For example, online purchases of flight tickets.
^For example, online purchases of package holidays.
(2) The Inland Revenue Ordinance (Cap. 112) (IRO) applies to all bricks-and-mortar businesses and online businesses operated in Hong Kong, including the businesses of e-commerce. Hence, the Inland Revenue Department (IRD) does not require taxpayers to declare their business operation model (i.e. bricks-and-mortar or online business) for tax assessment purposes. The IRD therefore does not maintain the breakdown of the amount of tax revenue from e-commerce and digital economy. To avoid increasing the compliance burden of taxpayers, the IRD does not plan to require taxpayers to declare information on their business operation model which is not necessary for tax assessment purposes.
(3) Under the Business Registration Ordinance (Cap. 310) (BRO) and the IRO (Cap.112), online businesses and brick-and-mortar businesses are subject to the same legal obligations and compliance requirements. Any person who carries on a business in Hong Kong, regardless of whether through a brick-and-mortar presence or the internet, is required to apply for business registration under BRO (Cap.310), and to file tax returns and pay tax under the IRO (Cap.112).
All local companies and non-Hong Kong companies incorporated/registered under the Companies Ordinance (Cap. 622) are deemed to have applied for business registration simultaneously upon incorporation/registration. The IRD conducts inspections from time to time on whether persons carrying on businesses have complied with the registration requirement under the BRO (Cap.310). Where a business carried on in Hong Kong (including online activities that constitute the carrying on of a business in Hong Kong) is found not to have business registration, the IRD would require the relevant person to apply for business registration for the business concerned as soon as possible, and would initiate prosecution against the relevant person where necessary.
During the three years from 2023/24 to 2025/26, the IRD conducted inspections under the BRO for 2 287, 1 598 and 1 475 cases respectively involving transactions carried out on the internet. Among these cases, 294, 265 and 240 cases were required to apply for business registration and pay the relevant business registration fees and levies after examination. For tax investigation under the IRO (Cap.112), the IRD does not maintain a breakdown by business operation model (i.e. online or brick-and-mortar business).
(4) According to the IRO (Cap.112), profits tax shall be charged on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong from such trade, profession or business. This territorial source principle applies to companies incorporated in Hong Kong and those incorporated outside Hong Kong. Whether a cross-border e-commerce platform is liable to profits tax depends on the nature and extent of its activities in Hong Kong, as well as the facts of each case. Currently, the IRD does not require taxpayers to declare their business operation model (i.e. bricks-and-mortar or online business) for tax assessment purpose, and therefore does not maintain breakdown of the receipt of profits tax from cross-border e-commerce platforms.
For details about charging profits tax on e-commerce, the IRD has updated its Departmental Interpretation and Practice Notes No. 39 (Revised) "Profits Tax-Digital Economy, Electronic Commerce and Digital Assets" in March 2020 to provide guidance on the tax treatment of e-commerce transactions.
(5) Hong Kong has all along maintained a simple tax regime with low tax rates, which is one of Hong Kong's competitive advantages. When considering measures to increase revenue, our principle is to maintain the competitive advantage of Hong Kong's simple and low tax system, avoiding substantial increase in tax rates or introduction of new taxes as far as possible, while upholding the principles of "user pays" and "affordable users pay". Furthermore, we must also consider the policy objectives of the measures for increasing revenue, and make an overall assessment having regard to the Government's financial position, the overall economic environment, as well as the immediate and long-term needs of society.
Ends/Wednesday, June 17, 2026
Issued at HKT 16:05
Issued at HKT 16:05
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