Core Viewpoint - The Hong Kong government is revising its profits tax policy for the 2025/26 tax year, focusing on tax rate adjustments, expanded incentives, and enhanced compliance regulations, which may impact cross-border e-commerce companies significantly [1] Tax Rate Structure and Incentives - The two-tier profits tax rate structure will see a slight adjustment, with the tax rate for income exceeding HKD 2 million increasing from 16.5% to 17%, resulting in a minimal tax burden increase for medium to large enterprises [1] - The new regulations specify that the two-tier system applies only to companies with substantial operations in Hong Kong; those registered without a physical presence will be taxed uniformly at 17% [2] Additional Tax Deductions - A new provision allows for an additional 100% tax deduction on digitalization expenses related to e-commerce system development and digital marketing tools for the tax years 2025-2027 [2] - The scope of R&D expense deductions has been expanded to include product and operational model development for e-commerce, allowing for significant tax savings compared to previous policies [3] Compliance and Reporting Requirements - New requirements for cross-border e-commerce transaction disclosures have been introduced, necessitating detailed reporting on sales, costs, and related transactions to avoid penalties [6][7] - The criteria for proving substantial operations in Hong Kong have become more stringent, requiring documentation such as rental agreements and local employee records [8] Penalties for Non-Compliance - Penalties for late submissions and tax evasion have been increased, with fines for late filings doubling and harsher consequences for intentional misreporting [9]