E-commerce Funding: How the IRD view Shopify Capital and Amazon Lending

Scaling a fast-growing e-commerce brand requires constant liquidity to fund advertising campaigns and bulk inventory orders. To meet this demand, platforms have introduced frictionless merchant cash advances, such as Shopify Capital, Amazon Lending, and Stripe Capital.

While these funding mechanisms are incredibly easy to accept, often requiring just a single click in your seller dashboard, they create immediate complexities for your Hong Kong corporate bookkeeping and your statutory CPA audit.

The Unexplained Deposit Risk

When you accept a USD 50,000 advance from Shopify Capital, the funds are deposited directly into your Hong Kong corporate bank account.

To the untrained eye, or a basic bookkeeper, a massive deposit from a payment gateway looks exactly like sales revenue. If this deposit is erroneously recorded as sales income, your company's revenue will be inflated, leading to inaccurate financial statements.

During your annual statutory CPA audit, the auditor must verify the nature of every large deposit. You must provide the digital loan agreement and the repayment schedule from your merchant dashboard. If you cannot provide this proof, and the IRD initiates a tax query, the assessor will assume the deposit is taxable trading income, resulting in a disastrous tax assessment.

The Deductibility of Borrowing Costs

E-commerce loans are not free; they come with flat fees or interest rates automatically deducted from your future daily sales.

Under the Hong Kong Inland Revenue Ordinance, borrowing costs are generally deductible business expenses. However, the matching principle applies. An expense is only deductible if it is incurred in the production of chargeable (taxable) profits.

If your Chartered Tax Adviser (CTA) successfully secures a 0% Offshore Profit Tax Exemption for your business, your company has zero chargeable profits in Hong Kong.

Therefore, the fees you paid to Shopify Capital or Amazon Lending cannot be used to reduce your tax bill.

If your business utilizes an apportionment strategy (e.g., 10% of sales are local Hong Kong sales), your CTA must carefully allocate these borrowing costs to ensure you receive the correct proportion of local tax deductions without triggering an IRD tax query.

Are you injecting external capital into your e-commerce business?

About CK Tax

The founder was from one of the International Big 4 accounting firms (Corporate Tax) with extensive tax experience serving clients in different industries and participated in various tax projects including: tax investigation, offshore profits claim, reply of IRD enquiry letters, application of Tax Resident Certificate, tax automation projects for MNCs, optimization of overseas indirect tax, optimization of tax infrastructure to achieve tax reporting efficiency.

The founder is Fellow Member and former Council Member of The Taxation Institute of Hong Kong (Chartered Tax Adviser) and Fellow of Hong Kong Institute of Certified Public Accountants (Fellow Certified Public Accountant).  The founder is the first batch to be qualified to practice in China(Guangdong) Pilot Free Trade Zone, Qianhai & Shekou Area of Shenzhen, issued by Shenzhen Tax Service, State Taxation Administration.