In short: landed cost is the full cost of getting goods to your warehouse in a sellable condition. It includes the supplier’s price, freight, transit insurance, any duty and direct handling charges. Under the inventory rules the IRD applies, these costs belong in the value of your stock. They should not be booked as general expenses. Doing this gives you true margins, a defensible stock figure and records that stand up to the Inland Revenue Department (IRD).
Why landed costs matter for Hong Kong traders
Hong Kong’s total merchandise trade reached about HK$9,465 billion in 2024, up 7.3% after a 6.7% fall in 2023. Imports were about HK$4,922 billion and exports about HK$4,542 billion. The import and export sector employs roughly 400,000 people across more than 95,000 trading firms.
In a market this crowded, a small landed cost error can erase a thin margin. If freight is left out of stock cost, your gross profit looks better than it is. Closing stock is also understated, which distorts your profits tax computation.
What goes into landed cost
Hong Kong has no general customs tariff, VAT or GST on imports. Excise duty applies only to alcohol, tobacco, hydrocarbon oil and methyl alcohol. For most goods, landed cost is therefore driven by logistics rather than tax.
| Cost element | Typical examples | Include in stock cost? |
|---|---|---|
| Purchase price | Supplier invoice, less trade discounts and rebates | Yes |
| Freight | Sea or air freight, inland haulage | Yes |
| Transit insurance | Cargo policy premiums for the shipment | Yes |
| Duties | Excise duty on dutiable goods | Yes |
| Direct handling | Port charges, loading, unloading, declaration fees | Yes |
| Abnormal wastage | Losses beyond normal levels | No, expense it |
| Storage | General warehousing | Generally no, expense it |
| Admin overheads | Office and back-office costs | No, expense it |
| Selling costs | Commissions, marketing | No, expense it |
This follows the inventory standard (HKAS 2), which the IRD applies in its guidance. Cost includes the costs of purchase and other costs of bringing stock to its present location and condition.
Freight, insurance and Incoterms
Hong Kong’s official import statistics use the CIF basis (cost, insurance and freight). Exports and re-exports use the FOB basis (free on board). Your bookkeeping needs the same clarity.
- FOB purchases: the supplier’s invoice excludes international freight and insurance. Book those separately from your forwarder and insurer, then add them to stock cost.
- CIF purchases: freight and insurance are already in the invoice. Check that it shows enough detail to support your costing.
- Mixed terms: compare like with like before deciding which supplier is cheaper.
Freight is usually the dominant logistics cost. In one official statistical comparison, insurance and freight together were under 2% of total import value, and about 94% of that was freight. Insurance is often small, but it is still part of stock cost.
A hypothetical landed cost example
This example is illustrative only and is not a real transaction. It assumes an exchange rate of HK$7.80 to USD 1. Hong Kong’s currency is linked to the US dollar within a band of HK$7.75 to HK$7.85, so 7.80 is a reasonable working figure.
A trader buys goods with a supplier invoice of USD 10,000. Insurance is USD 200 and freight is USD 800. Local port and delivery charges are assumed at HK$1,170.
| Item | USD | HK$ |
|---|---|---|
| Goods | 10,000 | 78,000 |
| Insurance | 200 | 1,560 |
| Freight | 800 | 6,240 |
| CIF value | 11,000 | 85,800 |
| Local handling (assumed) | n/a | 1,170 |
| Total landed cost | n/a | 86,970 |
If you sell 1,000 identical units, each carries a landed cost of HK$86.97, not HK$78.00. In your real books, convert each item at the rate on the transaction date and apply that policy consistently.
Allocating shared costs across items
One freight bill often covers several products. A fair allocation method keeps unit costs sensible.
- By value: suits goods with similar handling needs.
- By weight or volume: suits bulky or heavy items.
- By quantity: suits uniform goods.
Choose the method that reflects how the cost arises and apply it consistently. Record the reasoning on your costing sheet.
Inventory valuation: what the IRD expects
The IRD’s guidance requires stock to be valued at the lower of cost and net realisable value. Net realisable value is the selling price less the costs of sale.
Your costing method, such as weighted average or FIFO, must be applied consistently from year to year. Opening and closing stock must also be valued correctly, because errors flow straight into taxable profit.
Insurance recoveries matter too. Sums recovered under insurance or indemnity are brought into account for profits tax. If cargo is damaged, record both the loss and the claim carefully.
Monthly bookkeeping checklist for traders
- Record every supplier bill, forwarder invoice and insurance premium against the right shipment.
- Keep a costing sheet per shipment showing each landed cost element.
- Update the inventory sub-ledger with quantity, unit landed cost and location.
- Reconcile goods received against purchase orders and supplier invoices.
- Accrue freight and insurance bills that have not yet arrived.
- Run a stock-take and investigate differences against book records.
- Review ageing stock (for example 0–30, 31–90 and 91+ days) for possible write-downs.
- Match customer receipts and supplier payments to bank statements.
Record-keeping rules
Businesses in Hong Kong must keep sufficient records, in English or Chinese, for at least seven years. Non-compliance can lead to fines of up to HK$100,000.
For goods-based businesses, IRD expectations include:
- A day-by-day record of money received and paid.
- Records of goods bought and sold, with values, quantities and counterparties.
- Trading stock statements supported by stock-take records.
Digital copies of bills of lading, commercial invoices, packing lists, insurance certificates and payment proofs make this much easier.
Common mistakes to avoid
| Mistake | Why it hurts | Better practice |
|---|---|---|
| Expensing freight immediately | Understates stock and distorts profit | Add freight to stock cost |
| Ignoring insurance premiums in costing | Understates unit cost | Allocate premiums to shipments |
| Mixing storage with landed cost | Inflates stock value | Expense general storage |
| Skipping the stock-take | Book stock drifts from reality | Count at least at year end |
| Changing costing methods casually | Distorts profit year to year | Apply one method consistently |
| Weak supporting documents | Hard to defend in a tax enquiry | Keep records for seven years |
Who this helps
Established SMEs need clean monthly management accounts and shipment-level margins. Our accounting and bookkeeping service is built around that kind of reporting.
Startups often begin with spreadsheets, then outgrow them as SKUs and shipments multiply. Setting up the chart of accounts and stock structure early saves rework later.
Overseas entrepreneurs planning a trading business can start with company formation in Hong Kong. Our company secretary service keeps statutory filings in order. If you are relocating to run the business, our immigration consultation and documentation support may help.
How good bookkeeping supports tax and audit
Accurate landed costs feed directly into cost of sales and closing stock, which drive your profits tax figures. Our tax return service depends on clean stock and cost records.
If your company needs its accounts audited, audit arrangement and support is smoother when stock schedules, costing sheets and supplier reconciliations are ready. We arrange and support the process. We do not perform audits ourselves.
As your team grows, you can also hand off outsourced payroll and HR so you can focus on sourcing and sales.
Frequently asked questions
Do I pay import duty in Hong Kong on trading goods?
Generally no. Hong Kong has no general customs tariff, VAT or GST on imports. Excise duty applies only to alcohol, tobacco, hydrocarbon oil and methyl alcohol.
Should freight be an expense or part of stock cost?
Freight needed to bring goods to your premises is part of stock cost. It reaches the profit and loss account as cost of sales when the goods are sold. Delivery to customers is normally a selling cost.
Is transit insurance part of landed cost?
Yes. Premiums for insuring goods in transit are a cost of bringing them to their present location. Keep the insurance certificate with the shipment file.
What is the difference between CIF and FOB for bookkeeping?
CIF includes cost, insurance and freight in the price. FOB excludes international freight and insurance, so you record those separately and add them to stock cost.
How long should I keep trading records?
At least seven years. They should be in English or Chinese and sufficient to show your income, expenses and stock.
Can I use spreadsheets for landed costing?
You can while volumes are small. As shipments and SKUs grow, accounting software with an inventory sub-ledger reduces errors and saves time.
Talk to Pinetree
If you want landed costs, stock valuation and monthly reporting set up properly for your trading company, our Hong Kong team can help. Contact Pinetree today to discuss your shipments, systems and next steps.
