Recently, a bombshell announcement has sent shockwaves through the cross-border and finance and tax communities—Zhiwen Group (formerly Momo) has been ordered by tax authorities to pay 547.9 million yuan in back withholding tax. Over 500 million yuan—gone in the blink of an eye.

What’s even more alarming is that the root cause of Momo’s tax reassessment is closely tied to what most cross-border e-commerce companies are currently doing,The logic is exactly the sameThe

Be sure to see the end, which has an exclusive compliance counseling benefit to help you do less. You can also add our online customer service(WeChat: jxhqcy890 / Mobile: 16625410105), we will assign a professional consultant to answer your questions, provide expert advice, and offer one-on-one service throughout the entire process.

01 What Did Momo Do Wrong?

Momo uses the classic red-chip VIE structure:

Cayman Islands-listed entity → Hong Kong holding company → Onshore WFOE → Onshore operating entity

Under this structure, when Beijing Momo distributes dividends to Hong Kong Momo, it has consistently benefited from the tax arrangements between the mainland and Hong KongPreferred Income Tax Withholding Rate for 5%The
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In accordance with relevant regulations,If a Hong Kong company holds a stake of 25% or more for at least 12 months, the dividend tax rate may be reduced from 10% to 5%.But the problem is that this offer comes with a critical caveat—A Hong Kong company must be identified as the “beneficial owner.”

After conducting a look-through review, the tax authorities discovered that Momo’s Hong Kong subsidiaryNo physical office space, no local employees, and no substantive business operations...is simply a shell company with “paper holdings.” Aside from holding the shares and immediately transferring them after receiving dividends, it does nothing else.

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groundAnnouncement No. 9 of 2018 of the State Taxation Administration: “Announcement on Issues Concerning the ”Beneficial Owner’ in Tax Treaties”...A company that does not engage in substantive business activities does not qualify as a “beneficial owner” and is not eligible for the preferential tax rate under the agreement.

The result is:356.1 million has been paid back and the remaining $191.8 million is on its way.

What's even more cruel is that from now on,For every dividend payment Momo makes overseas, it must10%Paying Taxes—Tax Costs Have Doubled Permanently.

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02 Implications for Cross-Border E-Commerce Sellers

When many cross-border e-commerce business owners heard this news, their first reaction was:“That’s a matter for the publicly traded company—what does it have to do with me?”

That's completely wrong.

Momo’s Hong Kong-based structure and cash flow model align with the operational logic of cross-border e-commerce, which involves “registering a Hong Kong company, collecting overseas payments on behalf of merchants, and applying for tax incentives.”identicalThe

A typical workflow for cross-border sellers is:

• Domestic companies are responsible for procurement and operations
• The Hong Kong company is responsible for setting up Amazon stores, linking payment methods, and consolidating overseas revenue.
• Profits are retained in Hong Kong through “service fees” or “purchasing markups,” thereby benefiting from the two-tier profits tax system.
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However, the reasons given by the tax authorities for their rejection in the Momo case,Almost every sentence hits the nail on the head when it comes to the pain points of cross-border sellers::

• Hong Kong companies have no fixed office location or full-time employees
• Apart from holding shares and receiving payments, no other substantive business activities have been conducted.
• There is a severe mismatch between asset size and revenue size
• No Substantive Control Over the Income
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Is your Hong Kong company also just a “mailbox”? Are the actual operations, warehousing, logistics, and decision-making all carried out on the mainland? If so, the only difference between you and Momo is the scale of your operations—in the eyes of the tax authorities, the logic is the same.
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The launch of the Golden Tax Phase IV system marks a shift in tax regulation from “tax administration based on invoices” to “tax administration based on data.” At the same time,CRS (Common Reporting Standard)It is no longer difficult for mainland tax authorities to access overseas transaction records. The “tax-free benefits” enjoyed by shell companies have come to a complete end.

03 The Three Red Lines Cross-Border E-Commerce Business Owners Are Most Likely to Cross

Based on our experience working with hundreds of companies, here are the three red lines that cross-border business owners are most likely to cross:

Red Flag 1: A framework that exists in name only

To facilitate payment collection, sellers register a company in Hong Kong and link a payment method, so that all funds are first received in Hong Kong and then transferred back to the mainland. Under this structure, the Hong Kong company is often merely a“Funds Transfer Hub”. If the tax authorities conduct a look-through audit and find that the entity lacks substantive business operations, not only will it be ineligible for the preferential tax rate, but it may also be deemed to have abused the tax treaty, resulting in back taxes, late payment penalties, and even fines.
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Article 47 of the *Corporate Income Tax Law*The general anti-tax avoidance provision explicitly states that if an enterprise implements an arrangement that lacks a reasonable business purpose and thereby reduces its taxable income or taxable earnings, the tax authorities have the right to adjust such amounts using reasonable methods.

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Red Flag No. 2: Unreasonable Pricing of Related-Party Transactions

To keep profits in Hong Kong, where tax rates are low, sellers have their Hong Kong companies charge their mainland companies high “brand licensing fees,” “technical service fees,” or “purchase markups.”
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If these fees are pricedDoes not comply with the “arm’s-length principle”, which is significantly higher than the market fair value; the tax authorities have the right to, based on"Implementation Measures for Special Tax Adjustments"Make special tax adjustments to repatriate profits to China and collect the back corporate income tax of 25%.
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Red Flag #3: Bank Accounts Are at Risk of Being Frozen

According to Hong Kong"Regulations on Combating Money Laundering and Terrorist Financing", Hong Kong banks require ongoing due diligence on corporate accounts.

If a shell company is unable to provide evidence of substantive business operations, transaction records, or compliant tax filing documents,The bank has the right to freeze the account directly. Since the beginning of 2024, a large number of cross-border sellers have received notices from banks requesting additional information regarding their Hong Kong accounts, and some accounts have even been shut down outright.

If you haveHong Kong Company Registration, Bank Account Opening, Annual Audit, Tax Audit, ODI Filing and Tax ComplianceIf you have any questions or comments, please feel free to contact our online customer service:jxhqcy890 / Mobile: 16625410105), arranging professional managers to answer queries and provideLicensed Secretary + Full Process Compliance ProgramOne-to-one service ↓↓↓

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04 How Can Cross-Border E-Commerce Businesses Avoid Setting Up Shell Companies in Hong Kong?

Core Solution: Hong Kong Tax Resident Certification (CoR) + Compliance with Substantive Business Operations

Solution Logic (Explained in One Sentence)

• Mainland China Beneficial Owner + Hong Kong Shell Company = Mainland Tax Resident → CRS Data Reported Back to the Mainland → Audit and Tax Payment
• Mainland China Beneficial Owner + Hong Kong CoR Certification + Compliance with Substantive Business Operations = Hong Kong tax residents → CRS data is retained only by the Hong Kong Inland Revenue Department → Not transmitted back to the mainland

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We help businesses accomplish two things

First: Apply for the “Certificate of Tax Residency” issued by the Hong Kong Inland Revenue Department

This is the official certificate of “Hong Kong local tax resident” status issued by the Hong Kong Inland Revenue Department. With this certificate, your company will be recognized as a Hong Kong tax resident under the CRS framework, and data will be exchanged only with the Hong Kong Inland Revenue Department.

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Second: Establish a compliant, substantive business operation recognized by the tax authorities

Through professional bookkeeping, we prepare financial statements and help establish a complete chain of evidence to ensure your company meets the “economic substance” requirements of CRS 2.0, thereby completely shedding the “shell company” label.

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Service Process (One-Stop Agency Service)

1. Preliminary Qualification Assessment: Conduct a free assessment of the company’s eligibility to determine the feasibility of the application
2. Document Compilation and Processing Services: Assist with preparing documents such as the company registration certificate and business registration certificate, and fill out official tax forms
3. Application Submission and Follow-Up: Submit applications to the Hong Kong Inland Revenue Department on your behalf and monitor the review process from start to finish
4. Replenishment Assistance: Respond to the tax authority’s requests for additional information until the review is approved
5. Certificate Delivery: Certificates are typically issued within 30–60 business days and forwarded to the company as soon as possible.
6. Long-Term Maintenance: Certificate expiration alerts, architecture risk assessments, guidance on implementing mainland China incentives
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05 Check Now: Can Your Hong Kong Company Withstand a Review?

Please review the following list and answer these questions honestly:

• Is there a separate office space (which can be a coworking space)?
• Do you employ any local staff (not just nominal directors)?
• Are key business decisions made in Hong Kong?
• Is there a written contract specifying the pricing terms with affiliated companies?
• Have you prepared a complete set of transfer pricing documentation?
• Are bank accounts strictly separated from mainland companies?
• Are there compliant financial statements and audit reports?

If most of your answers are “no,” your Hong Kong company is heading down the same path as Momo.

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Momo’s 547 million tax payment is not an isolated case.

• A logistics company in Shenzhen concealed 17.44 million yuan in revenue through a Hong Kong shell company and was ordered to pay back taxes and fines totaling more than 5 million yuan.
• An Amazon seller in Suzhou was ordered to pay 12 million yuan in back taxes and late payment penalties.
• Several cross-border companies in Shandong, with annual turnover ranging from 5 million to 30 million, have been required to pay back taxes of 3.2 million to 4.8 million per transaction; their accounts have been frozen, and their operations have come to a standstill.
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These cases demonstrate that the tax authorities“ core audit principle is now very clear: look beyond the form and focus on the substance. Whether you are an industry giant or a small-to-medium-sized seller, and no matter how ”compliant“ the structure may appear, as long as the Hong Kong company is a ”shell” with no substantive business operations, it is absolutely impossible to evade regulatory scrutiny.

The era of "empty-shell" dividends has come to an end.

Proactive compliance and sound business practices are the only way forward for cross-border companies.

And the Hong Kong Certificate of Residence (CoR) is the key to this path.The first and most important gateThe

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What can Qicaiying do for you?

We specialize in providing one-stop agency services for Hong Kong tax residency certification to cross-border businesses:

✅ Free Eligibility Assessment—Can you set up a Hong Kong company? What do you still need? How big is the risk? We’ll tell you everything.

✅ Full-service agency—from document preparation to certificate delivery, guaranteed certification within 30–60 business days

✅ Building Substantive Compliance—Helping you meet economic substance requirements and completely shed the “shell company” label

✅ Long-term post-implementation support—certificate expiration alerts, architecture risk assessments, and guidance on implementing mainland China incentives

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If you haveHong Kong Company Registration, Bank Account Opening, Annual Audit, Tax Audit, ODI Filing and Tax ComplianceIf you have any questions or comments, please feel free to contact our online customer service:jxhqcy890 / Mobile: 16625410105), arranging professional managers to answer queries and provideLicensed Secretary + Full Process Compliance ProgramOne-to-one service ↓↓↓