Q & A for Internet Business
The BRO does not contain any specific provision in respect of internet businesses. Persons who carry on businesses, whether through a brick-and-mortar presence or the internet, have to comply with the same requirements under the BRO.
A person who carries on trading activities is required to apply for business registration if the activities constitute a business under the BRO and are conducted in Hong Kong. This requirement applies whether the goods traded are brand-new or second-hand.
There is no restriction on the age of applicant for business registration. Under the BRO, if a minor carries on a business (except an exempted business) the minor and his or her trustee (including guardian) are obliged to apply for business registration.
The IRD will first gather details of the relevant activities (procurement of goods, solicitation of buyers, delivery of goods, settlement of sales proceeds, etc.), scale of activities and location at which the activities are carried out. Based on the totality of facts of the case, the IRD will determine whether such activities constitute the carrying on of a business in Hong Kong. If yes, the IRD would advise and assist the business operator to apply for business registration. Failure to comply with the business registration requirement may result in prosecution being brought against the person concerned.
The Inland Revenue Ordinance (“IRO”) provides that every person who carries on a trade, profession or business in Hong Kong and derives profits therefrom which arise in or are derived from Hong Kong has to pay profits tax. Based on the totality of facts of the case, the IRD will determine whether a person is chargeable to profits tax in respect of profits derived from transactions carried on through the internet.
While an application for business registration certificate may not in itself give rise to any profits tax liabilities, a person who carries on an internet business is obliged to comply with the requirements under the IRO, which include the following:
(a) Unless a tax return has already been received, a business operator has to write to the Commissioner within 4 months after the end of the basis period for the year of assessment concerned if the business is chargeable to profits tax for that year of assessment.
(b) A business operator is required to keep sufficient records, in English or Chinese, of their income and expenditure to enable the assessable profits to be readily ascertained. Business records must be retained for at least 7 years after the completion of the transactions to which they relate.