Hong Kong Fintech & Payment Tax — Expert Advisory

Payment processing fees are sourced based on where the service is performed. Processing fees earned for transactions where both the merchant and cardholder are in Hong Kong are clearly HK-source income. Fees from cross-border transactions where one party is outside HK may have an offshore element — the proportion depends on where the payment service activities (card network clearing, settlement, fraud monitoring) are performed. An operations test analysis is required.

Yes. Annual HKMA licence fees, regulatory compliance costs, and supervisory fees paid to the HKMA, SFC, or other HK regulators are deductible business expenses for fintech companies. These are ongoing operating costs of conducting a regulated business in HK, not capital expenditure. Application fees for new licences may be capitalised if they relate to obtaining a new regulatory status.

Yes, provided the AI development meets the "systematic investigation" test. This includes: developing novel machine learning models for fraud detection, credit risk assessment, or anti-money laundering; research into new payment verification methodologies; and development of proprietary data analytics technology. Routine customisation of off-the-shelf AI tools and standard software integration work does not qualify.

Interest earned on SVF float (the client funds held in reserve by the SVF operator) is assessable as profits tax income for the SVF company. This is the case even though the float is held "in trust" — the interest earned by the SVF entity on those funds is income of that entity. SVF operators must carefully track float investment returns and include them in their assessable profits.

Fintech groups with HK operations and overseas technology platforms, data centres, or parent companies often have significant intercompany transactions: technology licensing fees, platform access charges, shared service fees, and management fees. Under HK's Part 9A transfer pricing rules, these must be priced at arm's length and documented contemporaneously if the company meets the relevant thresholds. Non-arm's-length pricing will be adjusted by the IRD.