E-commerce in Hong Kong: How to Set Up Your Company?

The e-commerce market in Hong Kong has been steadily expanding in the B2B and B2C sectors since a few years back, reaching almost 60% penetration rate by 2018

If you’re reading this, you already know that you want to start an e-commerce company. Whether you have an existing retail business and thinking of pivoting your business model, or just starting from scratch to open an e-commerce business in Hong Kong, we’re here to help you succeed.

Why delve into the e-commerce sector in HK? Well, in 2018, almost 5.5 million of its citizens shopped online. Successful e-commerce shops in Hong Kong include online shops for clothing, sunglasses, accessories, books and interior design items.

Factors that Will lead to Success for Hong Kong E-commerce Businesses

The Advantages of Opening an E-commerce company in HK are numerous. Let's look closely at some of them:

1. High Rates of Internet Usage

The e-commerce industry in Hong Kong benefits from the high density of Internet users and connectivity in the region. In 2019, close to 87% of the residents were deemed regular Internet users, and this number is predicted to cross 93% by 2025. With so many people familiar with the online world, e-commerce here have a larger market to operate in and an equally higher chance of success.

2. The High Number of Smartphone Users

According to Statista, by 2025, 7.2 million people in Hong Kong will access the Internet through their mobile phones. This is in line with the general trend of people shifting to smartphones for more and more of their Internet needs. With a mobile-first strategy and design, HK e-commerce companies can easily tap into the on-the-go online marketplace and ensure their customers get the best experience possible in the virtual world.

3. Favourable Taxation Policy For  Businesses

Hong Kong is well known as one of the easiest places to do business in, and its business-friendly tax policies extend to the e-commerce industry as well. In fact, a company's profits from e-commerce are not taxable if the business operations are located outside of HK. This is regardless of whether or not the company's internet service provider is based here.

4. A Reliable Technology and Information Systems Infrastructure

From stable power supply to local data centres to experienced IT professionals – Hong Kong has all the essential building blocks to make the running of online marketplaces smooth. The whole digital architecture is based on a foundation of always-available, high-speed Internet. HK is ranked 19th in the world in terms of internet speed. It also makes online shopping experience safe and private with stringent data privacy laws.

Choosing an E-commerce Business Model

There is no one-size-fits-all structure that will work for everyone. Understand the different  models available before you decide. Some models include service-based business, software, digital product sales, and physical products.

Here are a few types:

1. Dropshipping

   In this business model, you operate without having an inventory, or even shipping your products to the customers. If you want to quickly turn a profit or without thinking much of product development or investing heavily at the start, you might want to consider this.

   Meowsky is a popular e-commerce website selling cat products. They focus on getting customers to their websites. When they receive an order, they forward it to their supplier. Their supplier packages the order, and ships it to the customer. Meowsky doesn’t touch the product in the process.

2. Wholesale

   With this model, an e-commerce store ships products in large quantities and distributes them to smaller stores at discounted rates.

   Lair Groceries sells dried goods to specialty online stores. Their customers are high-volume buyers reselling their products at a marked up price.

3. White Label

   White label retailers apply their brand names and resell generic products purchased from a supplier. If you already have a strong idea of the perfect product you want to sell under your brand, you can look at white labelling or manufacturing.

   Sugar Beauty Spa already offers beauty services in their salon. They want to sell products on their online store too. They approach a private label skincare supplier to choose products which complement their services at the spa. The end product sold has the brand of Sugar Beauty Spa, however, the product specifications and quality are up to the private label’s control.

4. Subscription

   This model allows customers to subscribe to a service for a set period, usually monthly, or annually. When the subscription period expires, customers can cancel or renew, enjoying convenience and savings on repeated purchases.

   Zee Shave Club ships out exactly ten sets of disposable razors to their subscribers every month for a period of 3 months, 6 months, or 1 year. The longer the subscription period, the cheaper per unit of razor it is for the customer.

Out of all of these, which e-commerce business model attracts you the most?

Types of E-commerce Models By Transaction Order

Let us also examine the various e-commerce business models available in the market. This plays a part in how you structure your online venture.

1. Business to Consumer (B2C):
Businesses sell directly to an individual customer.
For example, Clothes (Zara), furniture (Ikea), Entertainment (Netflix)

2. Business to Business (B2B).
In a B2B e-commerce model, businesses sell to other companies.

For example, a manufacturing unit sells parts to Automakers or datacenter or ITes services to an organization. These are usually higher value offerings with longer sales cycles.

3.Consumer to Consumer (C2C)
This model is when individual consumers to sell directly to other buyers.
Example: eBay is an early example of this model.Today this includes platforms like Lazada and Shopee.

4. Consumer to Business (C2B)
In this model, individuals are connected to companies looking for unique skills, items or services
For example, Influencers selling their social media clout to brands is one example of the C2B model.

5. Business to Administration (B2A)
In this model, there is an  exchange of goods and services between businesses and the government. This could be a construction company or a security company that works with government bodies.

6. Consumer to Administration (C2A)
This encompasses the e-commerce model between an individual consumer and the administration. This is usually in the form of payment for utilities used, tax filing, etc.

Incorporating Your E-commerce Company in Hong Kong

Choose a Company Structure

Time to choose a name and incorporate your company.

In Hong Kong, the most common type of business entities are sole proprietorships, partnerships, limited liability company (LLC) or foreign company office.

A private limited liability company is most preferred when setting up your e-commerce company as it is a separate legal entity from you and your founders. The shareholders are only liable up to the amount they have invested in the entity. For this type of company, shares are easily transferred between the members. If your e-commerce company grows and you wish to make it public, they can convert the business form into a public limited liability company.

If you need help with registering your business as a private limited company, East river can help, just drop us a chat.

Next, Pick Your Store’s Name

Your online store and legal name of your business do not need to be identical, make sure your store’s name fits your niche and brand.

Check if Your Business Needs a License

If you will be selling alcohol online, you would need to apply for a special business license as well.  

Other Important Steps

Here are a few things that you would need to incorporate your company in Hong Kong as well:

• Registered address: First thing to consider is where all your legal correspondence is going to go. That’s right, you’re going to need a physical HK mailbox and that means having a registered, local address.
• Corporate Secretary: Next, you’ll need someone to handle any business-related reporting. Their role is to ensure you’re operating within the law and adhering to government regulations, as well as to document any structural or managerial changes.
• Business Registration Certificate: To make things officially official, you’ll need to get a business registration certificate that’s updated every year.

Is it your first time starting a business in Hong Kong? This article will help you understand in more detail about the whole process.

Opening a Business Bank Account

Now it’s time to open a bank account. To do this, you’ll need to gather the documents you have from registering your company. These include things like Certificate of Incorporation, a registered address, shareholder info and your Business Registration Certificate, your business plan (if required).

If you want a seamless and quick way to open a business account when you register a company in Hong Kong, our partners at Neat, a banking alternative, can help you with that. The account opening process is done fully online from anywhere you are in the world, the application is free and takes only 15 minutes to complete. If you’re already in HK and want to open a corporate bank account, we can help you to open one with HSBC or OCBC too. Talk to us here to find out more.

Also read: Tips on Opening a Business Bank Account in Hong Kong

Choosing the E-commerce Platform

Find the Right Vendors

When your store is online, your competition is with all the other online stores in the same niche. Shop around domestically or from overseas from popular directories like Oberlo, Alibaba, AliExpress, and Sourcify.

Build Your Store

There are a few ways to go about selling your products - your own store or marketplaces. The best option is also to create you e-commerce website where you can display the products it offers.

Choose Hosted or Self-hosted Platform to Build Your Online Store

Your store is the most important part of having an online business, so take time to get it right. You can go about it by choosing a hosted platform, or self-hosted platform. Let’s break it down.

Platforms

If you do not want to set up a store, you can also create a storefront on platforms where locals like to shop at. Get to know each platform first and try out uploading products and arranging your storefront to see which you are most comfortable in. You can always change the platform while keeping your domain (that’s the URL to your shop). According to iPrice, here are the most popular platforms to sell products online in HK.

A Note on Data Protection Measures

As you do marketing and sell to customers, you will collect more information from them. Online businesses must protect the information of their customers in line with the Personal Data Privacy Ordinance (PDPO). In HK, privacy laws are very strict and do not permit unauthorized persons or even government authorities to access the data centre.

Figuring out Taxes and Accounting

Accounting and Bookkeeping

After your first 18 months, you will need to file your  first Profits Tax Return to the Hong Kong Internal Revenue Department (IRD).

Preparing the Yearly Accounting report and getting the report audited is necessary before you submit the tax return.

To make sure that the accounting of your business goes smoothly, do keep records of the financial transactions of your e-commerce business. Prepare this before you have lots of transactions to settle and balance. Otherwise, you may end up wasting lots of money and time to find those missing documents.

You can opt to work with a certified public accountant in Hong Kong or use online accounting services to reduce the price. The cost of CPAs will depend from one accountant to the other. If you’re new at accounting, we can help you to figure it all out.

Taxes

Taxes are a breeze in Hong Kong, even for businesses. During tax season, you can file your corporate tax online with a BIR51 form. Regarding the Profits Tax rate,  you are able to benefit from HK’s two-tier taxation where your first HK$2,000,000 is taxed at 8.25% and anything over is taxed at 16.5%. Do keep all your records for at least seven years.

By now, you should have a better idea about setting up an e-commerce company in HK without a hitch. If you have any questions at all regarding this, we can help you with any questions.

If you’ve been dreaming about starting an online store in Hong Kong, what’s holding you back?