How To Start a Hong Kong E-commerce Business

Hong Kong e-commerce continues to rise, with numbers said to reach a 76.7% penetration level in 2022. Online business sales grew by 27% in 2020 and by 2025, user penetration is predicted to reach 83.8%. If you want to know how to start an online business in Hong Kong and tap into what’s predicted to be an audience of more than 6 million users by 2o25, we can help.

This sector is full of opportunities for entrepreneurs like you, whether you’re looking to pivot an existing business model or register an ecommerce business in Hong Kong from scratch.

E-commerce Business: What Does Success Look Like?

Opening an e-commerce business in Hong Kong offers the following advantages:

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 familiar with the online retail space, e-commerce businesses have a larger market to operate and an equally higher chance of success.

2.   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 as their primary device for internet access. With a mobile-first strategy and design that’s user-centric e-commerce, Hong Kong businesses can tap into an on-the-go online marketplace to offer the best possible experience in a virtual world.

3. Favourable Taxation Policy For  Businesses

Known as one of the easiest places to do business, Hong Kong also has business-friendly tax policies that extend to the e-commerce industry. Profits from an e-commerce business are not taxable if the business operations are located outside Hong Kong, whether or not their internet service provider is based in HK.

4. Reliable Information Technology (IT) Systems & Infrastructure

A stable power supply, local data centres and experienced IT professionals are essential building blocks available for online business owners. Hong Kong’s sophisticated infrastructure makes running an online marketplace a seamless process - through a digital architecture based on a foundation of always-available, high-speed internet. With an internet speed ranked in the top 5 globally, e-commerce in Hong Kong is primed to be a safe and private experience, protected by stringent data privacy laws.

Choose an E-commerce Business Model

There is no one-size-fits-all structure. If you want to know how to start an online business, you first choose the model of your e-commerce business that’s in line with your needs. Will it be service-based? A software business platform selling digital products online or an e-commerce store selling physical products only?

Here are a few models that should factor into how you start the planning of your startup in Hong Kong:

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 business selling cat products. They focus on increasing traffic to their website. When they receive an order, they forward it to their supplier. Their supplier packages 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 food stores. Their customers are high-volume buyers who buy online and resell Lair’s 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 Sweet Spa offers beauty services from their salon. They want to expand to sell products online and approach a private label skincare supplier. Products that complement their services are chosen and sold under the Sugar Sweet Spa brand. Product specifications and quality is determined by the private label.

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 10 sets of disposable razors to subscribers via monthly subscription packages - 3 months, 6 months or 1 year. The longer delivery period, the cheaper it is per unit of razor for the customer signing up, which incentivises long-term subscription.

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

Types of E-commerce Models By Transaction Order

There are various e-commerce business models available in the market which play a part in how you structure your online venture.

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

2. Business to Business (B2B).
In a B2B e-commerce model, businesses sell to other companies. These are usually higher value offerings with longer sales cycles and could be anything from selling manufacturing parts to automakers or datacenter or IT services to an organisation.

3.     Consumer to Consumer (C2C)
This model is when individual consumers sell directly to other buyers, with eBay being one of the earliest examples and platforms like Lazada and Shopee also emerging in this space.

4. Consumer to Business (C2B)
Individuals are connected to companies looking for unique skills, items or services. Influencers selling their social media clout to leverage brand exposure is one example of this C2B model.

5. Business to Administration (B2A)
In this model, there’s exchange of goods and services between businesses and the government which could range from a construction company to a security firm.

6. Consumer to Administration (C2A)
This encompasses the e-commerce model between an individual consumer and the administration. It’s usually in the form of payment for utilities, tax filing or other admin-centric operational tasks.

Incorporating Your E-commerce Company in Hong Kong

Choose a Company Structure

Businesses in Hong Kong most often take the form of sole proprietorships, partnerships, limited liability company (LLC) or foreign company offices.

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. Shareholders are only liable up to the amount they have invested in the entity and shares are easily transferred between members. If your e-commerce company grows and you wish to make it public, you can convert the business form into a public limited liability company. If you need help with registering your business as a private limited company, Osome can help, just drop us a chat.

Pick Your Store’s Name

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

Check if You Need an Online Business License

This comes down to the goods you’re selling, for example, if you plan to sell alcohol online, you need to apply for a special business license.

It’s Also Important To Set Up the Following

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

• Registered address: A physical, local HK mailbox to which all your legal correspondence goes to.
• Corporate Secretary: Someone to handle any business-related reporting and ensure you’re operating lawfully and adhering to government regulations. They’ll also 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.

Opening a Business Bank Account

Gather the documents you have from registering your company, including your Certificate of Incorporation, a registered address, shareholder info and your Business Registration Certificate, and your business plan (if required).

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 want to open a corporate bank account in HK, we can help you to open one with HSBC or OCBC too.

Choosing an E-commerce Platform

The Right Online Vendors

If you’re selling online, your competition is all other e-commerce vendors operating in the same niche. Shop around domestically or overseas from popular directories like Oberlo, Alibaba, AliExpress, and Sourcify.

Build Your E-commerce Store

There are a few ways to go about selling your products - your store or marketplaces. The best option is also to create your e-commerce website to display your products beautifully, clearly and with all the relevant specs needed to inform an online purchase.

Build Your Store: Hosted or Self-hosted Platform?

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.

E-commerce Platforms

If you’re not interested in setting up your online store, you can create a storefront on platforms where locals like to shop at. Trial different options and arrange your storefront with products to see which platforms feel like the best fit. You can always change the platform while keeping your domain (URL to your shop). Here are the most popular platforms to sell products online in HK:

A Note on Data Protection Measures

Part of marketing and selling to customers entails collecting some information from them. Online businesses must protect customer information in line with the Personal Data Privacy Ordinance (PDPO). In HK, privacy laws are very strict and do not permit unauthorised persons or even government authorities to access the data centre.

Figuring out Taxes and E-commerce Accounting

Online Accounting & Bookkeeping

After your first 18 months, you will need to file your first Profits Tax Return to the Hong Kong Internal Revenue Department (IRD). Before you submit your tax return, you need to prepare and audit your early accounting report. Smart e-commerce business accounting means keeping all financial transaction records. Get this process going from the get-go before you’re swamped with too many transactions to settle and balance.

E-commerce Taxes

File your corporate tax online with a BIR51 form. You can benefit from HK’s two-tier taxation according to the Profits Tax rate where your first HK$2,000,000 is taxed at 8.25% and anything over is taxed at 16.5%. Keep historic records on file for as long as 7 years.

We’ll help you set up an e-commerce company in HK without a hitch so stop dreaming about starting that online store and let’s make it a reality.