⚠ Agency Media Buy Pass-Through Is Often Mishandled
Marketing agencies that report gross media spend (including client media buys) as agency revenue are significantly overstating taxable income. Media bought on behalf of clients should be treated as a pass-through, with only the agency commission or markup recognised as income.
Common Challenges
Media Buy Pass-Through Treatment
When an agency buys media (TV, digital, outdoor) on behalf of a client and re-bills it, only the commission or markup is the agency's income — not the full media cost.
⚠ Risk: Gross media billing as revenue → massive overstatement of profits
Creative Production Cost Deductions
Film production, photography, animation, and content creation costs can be significant. These are revenue expenses if consumed within the campaign, but long-life creative assets may be capital.
⚠ Risk: Long-life assets not capitalised → deductions taken too early
Overseas Campaign Fee Sourcing
Agency fees for campaigns executed primarily in overseas markets may have an offshore component if creative and production work occurs outside HK.
⚠ Risk: All campaign fees treated as HK-source → over-taxation on offshore campaigns
Digital Platform Costs
Google Ads, Meta Ads, TikTok Ads managed on behalf of clients — how should these be treated? As pass-throughs or billed gross to clients?
⚠ Risk: Gross digital ad spend in revenue → inflated assessable income
Who Is This For?
Full-service advertising agencies
Traditional and integrated advertising agencies serving HK and regional clients.
Digital marketing agencies
SEO, SEM, social media, and performance marketing agencies.
PR & communications firms
Public relations, crisis communications, and brand consultancy firms.
Creative production studios
Film production, photography, and creative content production houses.
What We Do
Agency Revenue Structure Review
Establish correct gross vs net revenue reporting for media buys, production, and digital spend on behalf of clients.
Principal vs agent analysis for media buying arrangements
Marketing Agency Profits Tax Return
Prepare BIR51 with correct agency income schedules, production cost analysis, and creative asset treatment.
Commission, retainer, and project fee revenue breakdown
Overseas Campaign Fee Analysis
Identify offshore income elements for campaigns executed primarily in overseas markets.
Campaign geography and service activity analysis
Freelancer & Contractor Tax Review
Ensure correct tax reporting for all freelance creatives, photographers, and production contractors.
IR56M and employment status analysis for regular freelancers
How It Works
Agency Business Review
1-2 daysReview your client roster, revenue streams, media buying arrangements, and production cost structures.
Revenue & Cost Analysis
1-2 daysAnalyse gross vs net revenue treatment and identify all qualifying deductions.
Return Preparation
3-5 daysPrepare profits tax return with agency-specific income and cost schedules.
Annual Agency Tax Planning
AnnualStaff incentive planning, freelancer cost management, and creative asset tax treatment review.
Case Studies
Integrated advertising agency — 28 staff
- •Apparent revenue HKD 45M (gross media)
- •Principal vs agent analysis → 62% pass-through
- •True agency revenue HKD 17M
- •Assessable profits reduced significantly
“They identified that we'd been over-reporting revenue — and over-paying tax — for years.”
Digital marketing agency — 15 staff
- •Annual agency fees HKD 8.5M
- •Digital ad pass-through treatment corrected
- •Overseas campaign fees offshore-apportioned
- •Freelancer tax compliance updated
“Professional service with real, measurable results.”
Frequently Asked Questions
Should a marketing agency report gross or net media spend as income?
This depends on whether the agency acts as principal or agent in the media buying arrangement. If the agency acts as agent (buying media in the client's name, with the client as principal) — only the commission or service fee is the agency's income, not the gross media spend. If the agency acts as principal (buying media in its own name and re-selling to the client) — the gross billing is income and the media cost is an expense. Many agencies act as agents, in which case gross billing significantly overstates income.
Are freelance photographer and videographer fees deductible?
Yes. Fees paid to freelance photographers, videographers, animators, and other creative contractors for campaign work are deductible business expenses. If the contractor is a HK resident not carrying on a business, they may be employees for tax purposes (requiring IR56B). Non-resident freelancers may be subject to s.20B withholding tax. Contractors operating their own businesses should be reported on IR56M if annual payments exceed the reporting threshold.
How should agency retainer fees be recognised for tax?
Retainer fees should be recognised as income in the period to which they relate — typically monthly as the retainer service is provided. Annual retainers received in advance should be deferred and recognised monthly. This matches the economic reality of ongoing retainer services and avoids including future period fees in current year assessable profits.
Are business development and client entertainment costs deductible?
Business development costs (pitch expenses, proposal preparation, market research) are generally deductible. However, entertainment expenditure — client dinners, sports events, corporate hospitality — is explicitly non-deductible under s.17(1)(b) of the IRO if it is of an entertainment nature. The distinction between a working business lunch (deductible) and entertainment (non-deductible) can be subjective, but the IRD will disallow expenditure that is primarily for entertainment purposes.
How are digital advertising platform fees (Google, Meta) treated for tax?
Digital advertising spend managed on behalf of clients should be analysed under the principal vs agent test. If the agency holds contracts with Google/Meta in its own name and takes credit risk — it is principal, and the full billing is income with the platform cost as an expense. If the client holds the advertising account and the agency merely manages it for a management fee — only the management fee is income. Most agency arrangements with clients involve the agency as principal.
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