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What is operating a business?

According to the Hong Kong Taxation Ordinance, anyone in Hong Kong:

  • Generate income from business or trading business
  • Whose business or trader’s assessable income is derived from Hong Kong

must pay profits tax.

Regarding the first point above to determine whether the person is engaged in a business or a trading business, the Hong Kong tax department will consider the following matters:

  1. The intention to gain profit/incur loss (for example, buying and selling assets for gains, but you may also lose money as a result)
  2. Frequency of similar transactions and services (whether to repeat product transactions or provide services)
  3. The nature of the asset (for example, purchased a motor vehicle for bringing students to school)
  4. How to change the product (for example, beautify the product to promote sales)
  5. How to sell (whether it is in accordance with the sales procedures of general business activities)
  6. Source of income (short-term or long term loan)
  7. Time between purchase and sale (the shorter the time distance, the higher intention to trade)
  8. How to acquire the assets (if the assets are inherited, it shows that the intention to trade is not high)

We welcome your inquiries in relation to any taxation matters.

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