More and more entrepreneurs are ditching the traditional business model and moving their business ideas online. As easy as that may be, you need to be aware of the legal requirements when setting up an online business.
Register your business
Before running an online business, the first thing to do is set up a company. No matter the type of business you are starting, you will need to register with the government and obtain a license (if required) to run your business in Hong Kong.
Besides filing required documents, choosing your business name and completing forms on your business plan, the requirements for business registration vary depending on the business structure (sole proprietorship, partnership, private limited company etc). For more information on the required forms in Hong Kong for all types of businesses, check the Inland Revenue Department website.
You need to register your business within 30 days of commencing operations. Once you have registered, you will receive a Business Registration Certificate. The certificate is only valid for one year, meaning you need to renew it every year if you continue to run your online business in Hong Kong
To find out more about registering your business, click here.
Register the Domain Name
A domain name is your online website address (e.g. hire.legal.com). To obtain one, you need to register your domain name by making an application to the domain name registrar in Hong Kong. To find a list of all the domain registrars in Hong Kong, click here.
When applying for the domain name, you must show evidence of entitlement to the name, such as the Business Registration Certificate.
Your domain name needs to be unique and available. Hence, it should not violate any existing trademarks. It is recommended that when you are choosing a domain name to:
- Search the company name on the Cyber Search Centre or Company Search Mobile Service under the Companies Registry of the Government of the HKSAR.
- Afterwards, look at already registered trademarks with the Trade Marks Registry in Hong Kong here.
- Look up other domain names on the internet to make sure that your chosen name is available, and not too similar to existing domains. This will avoid any mix up with other businesses, company names, registered trademarks and domain names
This will help you in developing a branding strategy, where your domain name will be representative of your brand.
Note that anyone can register their domain name with ‘.hk’ with no residential requirement. But, if you want to register ‘.com.hk’ you have to be a commercial entity registered in Hong Kong.
If you want to trademark your domain name, you are required to register it in the Trade Marks Registry of the Hong Kong Intellectual Property Department for it to be enforceable. You must meet certain requirements to register.
Build your website
The content you put on your website is just as important in terms of staying legally compliant with following regulations, as well as communicating with your audience about the goods/services that you offer.
Important Policies and Legal Pages you should add to your website:
Every business that has a website should have Terms of Use even if it does not involve selling goods/services. These are terms and conditions that a visitor must agree to before using/accessing your website.
- Delivery/Shipping Policy
This will give details on delivery/shipping information that the customer should be aware of. This includes shipping costs, delivery methods, delivery times and tracking information they may receive.
Click here to access a Delivery/Shipping Policy Template.
- Returns/Refunds Policy
If you choose to offer a choice for customers to refund their goods, the policy should state under what circumstances are their goods eligible for a refund/return and when it is not. Moreover, if you offer monetary returns, detail whether they are refunded in full or partially.
Click here to access a Returns/Refunds Policy Template.
- Disclaimers
This will limit your liability, which will protect your business in case there is an issue with your service or product. For example, it may include limiting liability from physical harm resulting from your sold goods if used against instructions given.
Click here to access a Disclaimers page Template.
- Copyright Notice
Having one tells your consumers that the contents of your website legally belong to you and they are not allowed to take anything from your site without permission.
Click here to access a Copyright Notice Template.
To find out more about what these policies and legal pages consist of, click here.
- General Content to Include
These are the pages that will communicate what your business serves to your customers. Here are some ideas to get you started:
- About us page
- Product page with descriptions and photos
- FAQs section
- Blog on content relating to your business
- Contact page
Taxes
The taxation system in Hong Kong is simple and straightforward. For instance, the current tax rate for corporations is 8.25% after the first HK$2 Million is earned. An advantage of setting up an online business in Hong Kong is that there is no capital gain tax and no withholding tax on dividends and interests.
Generally, Section 14 of the Inland Revenue Ordinance requires anyone who carries on business in Hong Kong to be charged with profit tax on any profit made in Hong Kong. This means as an online business, if you sell to Hong Kong customers, you may be taxed.
Type of taxes E-commerce business owners need to know about in Hong Kong:
- Sales Tax
This is the amount charged after making a sale and is collected by the business owner or the seller and passed on to the government. If you decide to sell to international customers beyond Hong Kong, sales tax is not necessary for online transactions. But, you need to inform individuals of the tax regulations in their respective countries.
Example: You started an online business and recently expanded shipping to the United States. You will need to inform the customer that their home country may require them to pay tax on that purchase, even if the purchase is from an online store based in Hong Kong, where no sales tax is required.
- Profit Tax
According to the Departmental Interpretation and Practice Notes no.39, guidance is provided on how to profit tax operates. Profits will be taxed depending on permanent establishment and core operations. A business is considered a permanent establishment if it operates in a physical shop and thus, profits earned are subject to tax. But, online businesses are complicated as they may not have a ‘permanent establishment’ presence in Hong Kong.
Your server (the digital platform you are using to run your business, for instance, the website and electronic equipment used) is a permanent establishment if the core operations take place there.
Core operations include:
- Marketing and sales
- Operations; purchasing raw materials, production of goods
- Logistics; storage of goods, delivery and distribution of goods
- Where the provision of services takes place
If you are a Non-Permanent Hong Kong resident, it depends on how the core operations are conducted. For instance, if the website server based in Hong Kong is only informational and the core operations take place in another country, this is not a permanent establishment and thus is not subject to tax. However, if you use a Hong Kong internet service provider to run your e-commerce store and the server is used to perform core operations, your profits are subject to tax.
Data Privacy and Privacy Protection
The Privacy Data (Privacy) Ordinance (PDPO) regulates the collection/use of personal data.
For online businesses, personal data refers to information collected in a computer system or in records that enable access to information related to visitors. To find out what a privacy policy is and why you need it as an e-commerce business, click here.
What you need to know about the PDPO:
- The PDPO prohibits the collection and use of personal data unless you properly notify the individual that their data is being collected. This includes informing the individual the purpose of collection, where data is transferred to and if they are obligated to supply their data
- The collection of data has to be necessary and not excessive. While there are no specified limitations in storing the personal data, the data processors used need to comply with obligations such as to not keep the data any longer than necessary
- Your online business may be subject to more regulatory control if it is in a particular sector, such as insurance or banking
- If your online business collects cookies, the use of them must also comply with the PDPO. This includes:
(1) Providing a notification to inform users that cookies are collected and to specify what personal data is stored in them and their purposes; and
(2) Clarifying if the collection of cookies is a requirement in order to access your online store
Easily produce a Cookies Policy using our Cookies Policy Template and learn all about Cookie Policies here.
- As a collector of data, you have the responsibility of taking steps to ensure the collected data is protected against accidental and unauthorized processing, loss or use. For example, if you accept electronic payment, you have to comply with security standards regarding data security.
To find out more about personal data and privacy when conducting your business, click here.
Register the Trademark
You may want to trademark certain areas of your online business to protect your brand and gain the most commercial benefits from it.
What you can trademark according to the Intellectual Property Department in Hong Kong:
- Pictures, shapes, elements
- Packaging design or shape
- Words, phrases
- Numbers, letters, characters
- Colours, smells, sounds
To find out how to apply for a trademark, click here.
Other Relevant Hong Kong laws:
- Trades Descriptions Ordinance (Cap 362) prohibits unfair trade practices conducted by businesses; there should be no misleading actions/omissions and false advertisement
- Consumer Goods Safety Ordinance (Cap 456); If you’re selling goods, the consumer goods must comply with approved standard/safety specifications established by regulation
- Unsolicited Electronic Messages Ordinance (Cap 593) regulates sending unsolicited electronic messages for promotional or marketing purposes by voice, text, image, video message, fax or email
- Electronic Transaction Ordinance (Cap 552) recognises electronic records to have legal effect and regulates the use of electronic/digital signatures
- Payment Systems and Stored Value Facilities Ordinance (Cap 584) regulates stored value facilities and retail payment systems
- Misrepresentation Ordinance (Cap 284) provides for statutory remedies relating to fraudulent, negligent and innocent misrepresentation
Key Takeaways
- You need to register your company and obtain a business registration certificate to start legally running your business
- When obtaining a domain name for your online website, you have to register it with a domain registrar in Hong Kong
- Be aware of (1) profit tax and (2) sales tax. The amount of profit tax paid depends on permanent establishment and core operations. Whereas for sales tax, if your customers are based internationally, they need to be made aware of their local sales tax charge
- Legal must-haves for a website are: privacy policy, terms of use, disclaimers, a delivery/shipping policy, a refund/return policy and a copyright notice
Bibliography
- Domain Registration: https://www.ip.gov.hk/en/obtaining-a-domain-name.html
- Tax Rates of Profits Tax: https://www.gov.hk/en/residents/taxes/taxfiling/taxrates/profitsrates.htm
