Hong Kong Marketing Agency Tax — Expert Advisory

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.

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.

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.

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.

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.