Taxation of E-Commerce: DIPN 39 Tax Guidelines and Cautions
With the development of technology and the popularity of the Internet, e-commerce is becoming more and more important worldwide. In Hong Kong, e-commerce has become an increasingly important part of business activities. However, the taxation issues brought by e-commerce also come along with it. This article will introduce DIPN 39, the Hong Kong Inland Revenue Department’s guidance on e-commerce, and how to distinguish “e-commerce transactions” and remind you of the tax issues you need to pay attention to when engaging in e-commerce.
DIPN 39: Hong Kong Inland Revenue Department’s guidelines for e-business
The Inland Revenue Department of the Hong Kong Special Administrative Region (IRD) has provided a series of tax guidelines for e-commerce transactions in the IRD Interpretation and Practice Circular No. 39 (DIPN 39). The purpose of DIPN 39 is to ensure that the taxation of e-business transactions is properly addressed and to prevent tax irregularities in e-business transactions.
DIPN 39 covers the following key areas:
The definition and scope of e-commerce transactions;
The tax residency of e-commerce transactions;
The place of origin of e-commerce transactions;
profit tax on e-commerce transactions
Business tax on e-commerce transactions;
Stamp duty on e-commerce transactions;
Tax audit and investigation of e-commerce transactions.
How to distinguish “e-commerce transactions
In Hong Kong tax law, an “e-commerce transaction” is generally defined as a business activity involving electronic means, data interchange or other digital technology. In other words, an e-commerce transaction is a commercial activity conducted through the Internet or other electronic means, including transactions in online shopping, online payment, online advertising, etc.
According to DIPN 39, e-commerce transactions can usually be divided into the following categories:
e-merchants: merchants who sell goods or provide services through the Internet or other electronic means;
Electronic intermediaries: intermediaries that link buyers and sellers together through electronic means and receive commissions from them;
Electronic payment services: payment institutions that provide payment, settlement and clearing services through electronic means;
Electronic advertising and marketing: enterprises that conduct advertising and marketing activities through the Internet or other electronic means.
Taxation of e-commerce transactions
In engaging in e-commerce activities, enterprises and individuals need to pay attention to the following tax issues:
Determining tax residency
In Hong Kong, tax residency is an important factor in determining whether a business or individual is subject to Hong Kong tax. According to Hong Kong tax laws, only businesses and individuals residing in Hong Kong are required to pay tax in Hong Kong. Therefore, for businesses and individuals engaged in e-commerce transactions, it is important to determine the tax residency.
DIPN 39 states that the following factors need to be considered to determine tax residency:
The place of incorporation of the business or individual in Hong Kong;
The place of operation of the enterprise or individual in Hong Kong;
The place of management and control of the enterprise or individual in Hong Kong.
Determining the location of profits
The location of profits refers to the geographic location of the business or individual’s profits from e-commerce transactions. Under Hong Kong tax laws, only profits derived from Hong Kong are subject to tax in Hong Kong. Therefore, for enterprises and individuals engaged in e-commerce transactions, it is also very important to determine the location of the source.
DIPN 39 states that the following factors need to be considered in determining the place of origin:
The location of the business or individual’s operations in Hong Kong;
the place of management and control of the enterprise or individual in Hong Kong
The resources of the enterprise or individual in Hong Kong, such as assets, employees and facilities.
Payment of profits tax, business tax and stamp duty
When engaging in e-commerce transactions, enterprises and individuals need to be aware of the tax implications of paying profits tax, business tax and stamp duty. Under Hong Kong tax laws, enterprises and individuals are required to pay profits tax on their profits earned in Hong Kong; business tax on their business activities in Hong Kong; and stamp duty on their stamp duty matters involving Hong Kong.
DIPN 39 reminds businesses and individuals that when engaging in e-commerce transactions, they need to be aware of the following tax issues:
understanding the tax treatment of different types of e-commerce transactions in Hong Kong
Ensuring that profits tax, business tax and stamp duty payable in Hong Kong are paid;
Comply with the tax audit and investigation requirements of the Hong Kong Inland Revenue Department. The above information is provided for your reference. If you have any questions or information on tax filing (personal tax return, corporate tax return, accountant tax return), you are welcome to contact our professional advisors and we will provide you with a free quote and consultation service later.
