Over the past few years, the cross-border e-commerce industry has experienced rapid growth.

More and more sellers are expanding their presence on platforms such as Amazon, TikTok Shop, Shopee, Temu, and AliExpress, and operating multiple entities, multiple stores, and across multiple countries has become the norm in the industry.

At the same time, however, one trend is becoming increasingly apparent:

Global tax regulations are continuing to tighten.

Platform data, bank transaction records, customs declaration information, and overseas warehouse data are gradually being integrated, and business models that once relied on “gray-market practices,” “off-the-books income,” and “chaotic structures” are rapidly being phased out.

Many cross-border sellers are currently facing several key challenges:

• The number of store entities is increasing, but the structure is becoming more and more chaotic;
• Hong Kong companies with long-term zero tax returns;
• Overseas warehouses are deemed to be permanent establishments;
• Without a purchase invoice, costs cannot be recorded;
• Mixing business and personal accounts, with unclear cash flow;
• Splitting revenue among multiple companies carries tax risks.

Today, tax compliance is no longer something to be considered “only after the business has grown,” but rather the most fundamental prerequisite for survival in the cross-border industry.

Sellers who can truly achieve long-term growth are those who have first sorted out their organizational structure, finances, taxes, and accounting.

I. The 4 Most Common Business Models in Cross-Border E-Commerce: Which One Do You Fit Into?

Currently, cross-border sellers in the industry primarily operate under four main business models.

Different structures involve completely different tax logic.

1. Local Company + Local Store Model

This was the model adopted earliest by many traditional major retailers.

Usually:

Supply from domestic factories → Domestic export company → Hong Kong company → Local companies in Europe and the U.S. → Sales through Amazon fulfillment centers.

The biggest advantage of this model is its comprehensive business chain, which makes it better suited for in-depth expansion into overseas markets.

But the problem is also very obvious.

In their day-to-day operations, many companies encounter the following:

• Procurement without invoices;
• Long-term on-site presence at overseas warehouses;
• The Hong Kong company serves solely as a shell company for transshipment;
• Overseas profits are not reflected in domestic accounting records.

In particular, tax authorities in Europe and the United States are applying increasingly strict criteria when determining the existence of a “permanent establishment.” Once it is determined that a company is conducting actual business operations in a particular jurisdiction, it may be required to pay local corporate income tax.

Take the United States, for example:

• The federal income tax for a Class C corporation is 21%;
• Once an LLC is pierced to reveal the individuals behind it, the individual income tax rate can be as high as 37%;
• In some states, additional state taxes and franchise taxes are also required.

In the EU market, however, VAT reporting is a common issue.

Many sellers assume that “if goods are stored in an overseas warehouse, they won’t necessarily be inspected,” but in fact, overseas warehouses are currently one of the key targets of tax oversight.

2. Cross-border Store Model

This is also the most common model currently used by small and medium-sized sellers.

Usually:

Hong Kong companies list their products on the platform, while mainland companies supply the goods, which are then shipped directly to overseas warehouses.

The most notable feature of this model is:

Simple architecture, low setup costs, and quick deployment.

But the problem is:

Many sellers' Hong Kong companies are not actually in operation.

No employees,
No office,
There are no meeting minutes,
Long-term zero reporting,
Even if it's just for platform registration and receiving payments.

The risks associated with this “shell company” model will only increase in the future.

Especially as data from platforms, banks, and tax authorities becomes increasingly integrated, taxpayers who consistently underreport or file zero tax returns are likely to become a focus of scrutiny.

3. “Saiwei 2.0” Compliance Framework

In recent years, an increasing number of established sellers have begun to shift toward group-based, standardized operations.

In other words, as is often said in the industry:

“Saiwei 2.0 Compliance Framework.”

The core logic is:

Through the Group’s unified holding structure, we have clearly separated the functions of supply, exports, third-party operations, domestic store operations, and overseas operations.

For example:

• Domestic factories are responsible for supplying the goods;
• Domestic export companies are responsible for exports;
• Overseas entities are responsible for sales;
• The domestic operating company is responsible for providing the service.

The biggest advantage of doing this is that it allows you to:

Goods flow,
Cash flow,
Document Flow,
Business Process,

Truly unified.

At the same time, it can also solve many long-standing problems that have been a headache for sellers:

• Cost invoice missing;
• Discrepancies between actual revenue and recorded figures;
• Chaos in capital repatriation;
• The discrepancy between domestic and overseas profits cannot be explained.

However, it is important to note that:

This structure isn't something you can just set up by “registering a few more companies.”

Pricing for related-party transactions, funding channels, and actual operational capabilities must all be accurate and reasonable.

Hong Kong companies, in particular, must never be mere “shell companies.”

4. Temu’s Dual-Operation Model

Temu sellers are currently categorized as follows:

Full-day and half-day programs.

Under the full-board model:

Goods are supplied to the platform domestically, the platform handles centralized sales, and the funds are repatriated to China in RMB.

As for the semi-tray mode:

In such cases, overseas entities are more commonly used, with payments settled in U.S. dollars to overseas companies.

The biggest risk associated with this type of model right now is actually:

Authenticity of income.

Because many sellers:

• Multi-account payment collection;
• Mixing business and personal accounts;
• Overseas funds have not been repatriated for a long time;
• The reported profits are severely distorted.

In the future, under big data regulation, issues like this will become increasingly sensitive.

II. The Top 5 Tax Risks Cross-Border Sellers Are Most Likely to Encounter

Many sellers feel that:

“As long as it hasn’t been investigated, that means there’s no problem.”

But in reality, many of these risks have simply not yet come to light.

Once the system begins cross-referencing data, problems often arise in clusters.

1. Risks Associated with Overseas Warehouses as “Permanent Establishments”

This is currently the most overlooked issue in the cross-border industry.

Many sellers believe that:

Overseas warehouses are simply used for storing inventory.

However, under the tax logic of some countries:

Long-term warehousing, ongoing sales, and regular business activities may all be deemed to constitute a “permanent establishment.”

Once established, the following may be required:

• File income tax returns locally;
• Pay back past-due taxes;
• Pay the fine and late payment charges.

However, because Hong Kong companies lack the protection afforded by certain tax treaties, in many cases they face even greater risks than mainland entities.

2. The Risk of Hong Kong Companies Becoming “Shell Companies”

Many sellers like:

“Hong Kong Company + Zero-Declaration.”

However, the very areas the tax authorities will focus on in the future are:

Is it a legitimate business?

If there has been no such thing for a long time:

• Office space;
• Employees;
• Commercial Contracts;
• Meeting Minutes;
• Actual operational practices;

However, if there are consistently large transaction volumes, low tax burdens, or even zero tax returns over a long period, the risk will be very high.

If you want to truly take advantage of Hong Kong’s tax benefits in the future, the key is definitely:

“Substance over form.”

3. Equity Structure Risks

Many cross-border family businesses face one common problem:

The couple holds a 100% controlling stake in a single entity.

It may seem simple in the short term, but in the long term it could lead to:

Corporate income tax plus individual income tax on dividends.

More importantly:

If a company encounters tax issues, family assets are also likely to be affected as a result.

That’s why more and more established companies are now taking the following steps in advance:

• Planning of the Holding Company Structure;
• Share Isolation;
• Risk Isolation;
• Family Asset Allocation.

4. Risk of Concealing Income

This has been the most common problem in the industry in the past.

For example:

• Collection of payments from private accounts;
• Revenue from multiple companies;
• Fictitious services;
• Change the nature of revenue;
• Off-the-books operations.

In the past, many people thought, “The platform can’t track it.”

However, now that data from platforms, banks, tax authorities, and customs agencies is linked, large, suspicious transactions are becoming increasingly easy to identify.

Once you are found to have evaded taxes, it’s not as simple as just paying the back taxes.

Taxes,
Fines,
Late payment fees,
All of these may be subject to retroactive collection.

5. Risks Associated with the Industry’s “Historical Legacy Issues”

Many sellers don’t actually violate the rules on purpose; rather:

The early days of unregulated development left behind too many historical problems.

For example:

• Entities registered across regions;
• Confusion regarding subject-verb agreement;
• Inconsistencies in platform data;
• Illegal registration in tax havens;
• Long-term procurement without invoices;
• The store and the payment recipient do not match.

In the past, it may have been possible to “sweep these issues under the rug,” but that will become increasingly difficult in the future.

III. What cross-border sellers really need to do is not just “file taxes,” but ensure overall compliance

Many sellers today believe that:

Tax Compliance = Hiring an accountant to file your taxes.

Actually, that's not the case at all.

True cross-border compliance is:

From the initial setup,
Funding Path,
Customs Declaration Logic,
Bill Management,
Accounting entries,
Tax Filing,

Standardize everything.

The key is to focus on five things:

First, Registration Compliance

Ensure that the information on file with the industrial and commercial authorities, tax authorities, the platform, and the bank is consistent.

Don't:

The store is Company A,
Entity B is the payee,
Company C is handling customs clearance again.

Once future data is cross-referenced, anomalies are likely to occur.

Second, Bill Compliance

Purchase invoices, shipping costs, advertising expenses, and warehousing fees should all be properly documented and retained.

Because what we fear most about the future isn’t “having an income,” but rather:

There is no cost support.

Third, Customs Compliance

Proper export customs clearance ensures:

Goods flow,
Cash flow,
Document Flow,

The three streams are in harmony.

This is the most fundamental underlying principle of cross-border taxation in the future.

Fourth, maintaining compliant accounting records

Report actual profits.

Do not inflate costs,
No long-term losses,
Do not conceal your income.

The most dangerous situation for many sellers is:

The stream was getting wider and wider,
Yet profits are always close to zero.

Such prolonged anomalies are, in and of themselves, likely to trigger risks.

Fifth, Compliance Reporting

Filing on time and in accordance with the rules is more important than a “low tax burden.”

Because in the future, regulatory scrutiny will focus not just on how much tax you pay, but on:

Is your data logic accurate?

IV. After 2026, the cross-border industry will be defined by “compliance capabilities”

In the past, the biggest advantage in the cross-border industry was the information gap.

The biggest hurdle in the future will be:

Compliance capabilities.

As global tax transparency advances, gray areas such as fake transactions, concealment of income, improper bookkeeping, and the splitting of business entities will become increasingly limited.

But for businesses that are truly in it for the long haul, this isn't necessarily a bad thing.

Because the industry will gradually shift from:

“Who’s better at exploiting loopholes?”,

Change to:

“Who is more compliant, who is more stable, and who is better positioned for long-term operations?”

Sellers who can truly weather market cycles are certainly not those looking to make a quick profit in the short term, but rather:

People who have established the necessary framework, tax structure, funding, and global compliance systems in advance.