The global e-invoicing landscape is multi-variant and diverse. Many countries, including Hong Kong, have different regulations, frameworks, and requirements on the subject matter. These regulations are there to curb tax evasion.
There isn’t a mandatory requirement to use e-invoices in Hong Kong at the moment, but there are still rules for sending them for B2B and B2G transactions. For B2B transactions, companies must seek consent before sending e-invoices.
Companies must send all e-invoices for B2G transactions through the government’s e-procurement portal.
It is, therefore, important for companies with business operations in Hong Kong to be aware of and comply with these regulations and requirements.
What are the e-invoicing rules in Hong Kong? Who needs to comply with the e-invoicing regulations in Hong Kong? How do you send compliant e-invoices in Hong Kong? What should businesses do to comply with e-invoice regulations in Hong Kong?
These are some of the questions this article provides answers to.
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What are the e-invoicing rules in Hong Kong?
The e-invoicing framework in Hong Kong is predicated on two legislations, the Electronic Transactions Ordinance (Cap. 553) and the Inland Revenue Ordinance (Cap. 112).
The Electronic Transactions Ordinance (ETO) provides the legal requirements for all electronic transactions, including e-invoicing. The legislation recognizes electronic records as the same as paper records and signatures. It also covers topics such as the validity of electronic signatures and documents.
The Inland Revenue Ordinance (IRO), on the other hand, covers taxation in Hong Kong. The IRO legislation mandates businesses to keep proper books and records for all financial transactions, including invoices.
While the legislation does not recommend the compulsory use of electronic invoices, it does specify what information must be in an invoice for tax reporting purposes.
Without any explicit mandatory requirement to issue electronic purchase invoices, the overarching framework in Hong Kong can be described as an open framework. As such, e-invoicing is permitted but not mandatory. Notwithstanding, there are still guidelines from the ETO and IRO for companies to follow.
For business-to-business transactions, a company must seek the buyer’s consent before sending an electronic invoice, even though the buyer is not required to provide an e-signature validation upon receipt.
The e-invoice must contain the same information as would a paper invoice. Additionally, companies must keep the e-invoice for at least seven years “after the completion of the transactions to which the records relate.”
Not complying with this and other stipulations in the IRO can attract a maximum fine of HK$100,000.
The e-invoicing model in Hong Kong is post-audit. This model means that both parties can exchange regular or VAT invoices without prior confirmation or clearance by the public administration. Businesses do not need to register with the Inland Revenue Department (IRD) before sending or receiving e-invoices.
That said, the public administration, in this case, the IRD, will still scrutinize the invoice at a later date. As such, the responsibility of guaranteeing the authenticity, integrity, and legibility of invoices falls on the companies.
Over the years, Hong Kong has adopted multiple strategies to encourage the use of electronic records. For example, the government increased the price of submitting paper documents and decreased the cost of submitting electronic documents.
The government also partnered with 12 private businesses to create Tradelink Ltd. Some of Tradelink’s services include e-invoicing, e-procurement, and e-payment.
Who needs to comply with the e-invoicing regulations in Hong Kong?
There’s no specific e-invoicing legislation in Hong Kong. The government has, however, promoted the adoption and growth of e-commerce and digital transformation initiatives, including e-invoicing.
Some of those initiatives include passing the ETO legislation, which provides clear guidelines on all electronic records in the administrative region. There’s also the need for companies to ensure their invoicing practices are in line with the IRO requirements.
As such, all businesses operating in Hong Kong must comply with the IRD’s requirements for record-keeping and invoice content, whether they use paper or electronic invoices.
How to send compliant e-invoices in Hong Kong?
Hong Kong operates a post-audit e-invoicing model on a non-mandatory framework.
Registering on the e-procurement portal is necessary to send electronic invoices to government agencies.
Companies do not need approval for each invoice before sending it to the appropriate entity.
Since all invoices end up with the Internal Revenue Department (IRD), they must meet the requirements for receiving documents set by the department. Hence, to send compliant e-invoices, companies must engage in the following steps:
1. Include “minimum” information
Design invoices to include the “minimum” information required by the IRD. The minimum invoice data that must be on an invoice include:
- Invoice number
- Invoice date of issue
- Customer’s name (or Department name for B2G transactions) and address
- Order and invitation to quotation number for B2G transactions
- Company’s business name and address
- Due date
- Date shipped
- A clear description of the goods and services, including product number, unit price or rate (if applicable), and total quantity or volume.
- The total amount for each item
- Grand total
You may include other information required by the receiving party, such as accounts payable, but the above items are the absolute minimum information that must be on the e-invoice.
Always confirm the accuracy of the invoice before sending it to the other party to avoid the need to alter the document. Such errors may cause a delay in the transactions or even potential financial loss.
2. Convert it to the acceptable format
The format for sending e-invoices to the IRD for tax purposes differs from the format required to send the same to government agencies.
The IRD will accept e-invoices in many formats like PDF, JEPG, and more. On the other hand, to send e-invoices to government departments, companies can only upload Zip files containing the e-invoice data in XML format.
3. Ask the buyer for consent (for B2B transactions)
The next step is to ask the customer for consent to send the invoice in electronic form. The receiving party must agree to receive the invoice that way for it to be valid under the ETO.
4. Exchange e-invoices
For B2B transactions, there’s no specified infrastructure to send e-invoices. As such, companies can send e-invoices directly or via their preferred electronic invoicing system (ERP or service provider).
It’s important to note, however, that the latter option is more efficient and recommended due to archiving requirements of the IRD. Remember, companies must keep invoices for at least seven years for audits by tax authorities.
For B2G transactions, companies must upload or create all e-invoices via the government’s e-procurement system. This stipulation only applies to goods less than HK$1.4 million and consultancy services below HK$3 million. Additionally, construction services are not part of transactions processed electronically.
Companies must register on the e-procurement system to use the e-invoicing services.
How to register and join the e-Procurement Programme for B2G transactions
Companies that already supply one or more participating bureaus or departments can apply for an activation ID and PIN for free. You need the activation ID and PIN to complete your registration on the e-procurement portal.
Companies without prior contractor or supplier agreements or transactions must first apply for inclusion in the Government Logistics Department Supplier Lists. You can do so through the Procurement and Contract Management System (PCMS) or by downloading and filling out an application form, which you then address to the Director of Government Logistics.
If your application is accepted, the next step is to apply for the activation ID and PIN to register on the e-procurement portal.
5. Archive the e-invoice
Companies in Hong Kong must archive or store e-invoices for a minimum of seven years for tax purposes. The IRD is the tax authority in Hong Kong. It's empowered to audit companies and their annual financial statement to assess profitability.
Additionally, note that this seven-year requirement remains valid even if the IRD has audited the e-invoice. Therefore, the e-invoicing system you employ must provide reliable archiving capabilities.
There are presently no specific guidelines on archiving in Hong Kong apart from how long to retain the file. For this reason, companies must keep the e-invoices safe with adequate backup in case of system failure.
Characteristics of the electronic invoice in Hong Kong
The requirements when sending e-invoices for payments and tax purposes vary.
B2B e-invoices generally have no specific requirements, but as noted throughout this article, it’s best practice to issue e-invoices in the standard acceptable by the IRD.
B2G e-invoices, however, have multiple requirements.
On the Hong Kong government e-procurement portal, companies can either create an invoice from the purchase order issued to the company or upload an invoice.
For the former, companies must still enter additional details such as item description, quantity, and amount.
When using the upload option, the file must be in ZIP format. The ZIP file should contain the e-invoice data in XML format. The data standard for the structured message of e-Invoice is UBL 2.0 standard (“with minor modifications”).
In both cases, companies can add additional files to support the invoice. The acceptable formats for these files include PDF, .doc, .docx, .xls, and .xlsx. All the files, including the invoice and supporting documents, must not exceed 12MB.
Hong Kong has no centralized network for sending and receiving e-invoices for business-to-business transactions. All invoices for B2G transactions must be delivered via the administrative region’s e-procurement portal.
Electronic signatures are not a requirement for electronic invoices in Hong Kong. This statement stands for both B2G and B2B transactions. Parties involved in a B2B transaction can use any qualified electronic signature, but it’s not compulsory.
For other B2G electronic records that require signatures, note that it’s only digital signatures that the government accepts.
The government requires digital signatures to have public key infrastructure (PKI) from recognized certification authorities appointed by the government’s Chief Information Officer.
Currently, there are only two approved certification authorities in Hong Kong: the Postmaster General (Hongkong Post Certification Authority) and Digi-Sign Certification Services Limited.
The Internal Revenue Department of Hong Kong requires companies operating in the region to retain their invoices (paper or electronic) for at least seven years.
Companies determine how and where they archive the e-invoices as long as they remain accessible, credible, and legible.
To satisfy the authenticity and integrity of an e-invoice, the company must meet the following IRD requirements:
- The information on the e-invoice remains accessible for subsequent reference by the agency.
- The company retains the e-invoice in the format it was originally generated, sent, or received. If the format changes, the company should be able to show that the current iteration represents the information as initially generated, sent, or received.
- It retains the information that'll facilitate the identification of the e-invoice's original destination and the date and time the invoice was sent or received.
E-invoice submission requirements to the local tax authority, IRD
The Internal Revenue Department also has specifications for submitting electronic information, including invoices.
E-invoices should be in either English or Chinese. E-invoices with only English characters must be coded in ASCII, ISO/IEC 10646-1:2000, ISO/IEC 10646:2003, or ISO/IEC 10646-1:2011 standards.
Electronic invoices with English and Chinese characters should be coded in ISO/IEC 10646-1:2000, ISO/IEC 10646:2003, or ISO/IEC 10646:2011 standards.
The IRD accepts electronic invoices in many file formats and standards, including PDF, HTML, TXT, .doc, .docx, .ppt, .xls, .xlsx, DXF, JPEG, and more.
All compressed e-invoices should be delivered as a Zip, GNU Zip, 7-Zip, or RAR file.
Manner of delivery
Companies can send e-invoices to the IRD via email with Simple Mail Transfer Protocol (SMTP) or Multipurpose Internet Mail Extension (MIME) standard. All the files attached to the email must not exceed 10MB.
Additional delivery methods include a 1.44MB diskette, CD-ROM in ISO 9660 format, DVD-ROM in ISO/IEC 13346:1995 format, and USB Mass Storage Device in FAT format.
What should businesses do to comply with e-invoice regulations in Hong Kong?
The first step is ensuring all employees, especially those involved in finance and sales, know the region’s electronic and paper regulatory requirements. You can create a regulatory document or checklist to guide employees.
Another strategy is to embrace technology to implement e-invoicing solutions. You can use technology to create e-invoices in the formats required by the IRD and the e-procurement portal.
If you have operations in multiple countries, it is resourceful using technology to manage compliance in many countries from one centralized solution.
At Storecove, our expertise is helping companies of all sizes send and receive invoices in a regulatory-compliant manner.
Be on the right side of e-invoicing requirements in Hong Kong
Hong Kong's e-invoicing landscape is open, meaning companies choose whether to issue an e-invoice or a paper version.
The government has, however, used different strategies to increase the adoption of e-invoicing, particularly with transactions involving government bureaus and departments.
Consequently, companies must upload all e-invoices to the government through the e-procurement portal with specific requirements. All e-invoices to the Internal Revenue Department also must meet specific stipulations.
For B2B transactions, the only requirement is for the receiving party to consent to the use of electronic invoices.
In both cases, companies must retain e-invoices for seven years.
With many countries embracing and passing e-invoicing regulations, many companies have their regulatory compliance work cut out for them.
Throughout 2023 and 2024, many more countries will pass e-invoicing legislation adding to your company's compliance headache.
Eliminate such worries by using Storecove's advanced e-invoicing solution to easily comply with e-invoicing requirements in 50 countries and send and receive e-invoices over multiple exchange networks. You can schedule a consultation with Dolf Kars, our e-invoicing expert, to discuss creating a custom e-invoicing solution that meets regulatory requirements in Hong Kong.
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