The territorial taxation regime of Hong Kong, regardless of the residential status of the taxpayers, exempts income earned outside Hong Kong from tax. On the other hand, incomes earned by residents and non-residents within Hong Kong are subjected to tax. Accordingly, a non–resident who participates in trade, profession or business inside Hong Kong will be liable to the Hong Kong Profits Tax regarding profits arising in or derived from this jurisdiction. When an entity, individual or company, that is ordinarily resident in Hong Kong is making certain types of payments to a non-resident entity, individual or company, a part of such payments corresponding to the tax liability of such non-resident recipient, must be withheld and paid to the Inland Revenue Department (IRD). Such withheld payments towards tax liability are called as withholding tax.
Scope of Hong Kong Withholding Tax
For the purpose of taxation, a foreign individual who has lived and worked in Hong Kong for less than 180 days in a tax year is considered a non-resident. In the case of companies, those that are incorporated outside Hong Kong or have their central management and control exercised from outside Hong Kong are considered non–residents.
The Hong Kong Withholding Tax has standard rates. However, Hong Kong has established Double Tax Avoidance (DTA) agreements with several jurisdictions to prevent double taxation on incomes earned by entities and individuals from sources across borders. Such DTAs generally include a clause governing Hong Kong withholding taxes that allows for a concessional rate or even exemption from withholding taxes on specific types of payments.
In Hong Kong, dividends and interests are not subject to the Hong Kong Withholding Tax. However, royalties and fees paid to non-resident sportspersons and entertainers are subjected to the Hong Kong Withholding Tax.
Related Read: 9 Ways to Reduce Your Personal Tax in Hong Kong »
Hong Kong Withholding Tax on Royalties
Royalties are payments made to non-residents for the right to use their intellectual property. Typically, it includes payments for:
- Use or exhibition of films, sound recordings, tape recordings and related advertising material in Hong Kong.
- Use of patents, designs or trademarks and copyrighted material, prototype, formula or other similar properties or rights.
- Imparting knowledge in connection with intellectual property both inside and outside Hong Kong.
The Hong Kong Withholding Tax on royalty payments will depend on whether or not the non-resident is associated with the Hong Kong Entity.
- Hong Kong Withholding Tax charged on royalties paid to non-resident corporations is 16.5% in general. In the case of non-resident companies which are not associated with any Hong Kong company, the withholding tax rate on royalties is 4.95%.
- The withholding tax rate on royalties paid to non-resident individuals is 15% in general but for non-resident individuals who are not associated is 4.5%.
What Constitutes ‘Association’?
In the case of individuals, the following entities are considered “associates”
- A partnership where the other person is a partner
- A relative
- A partner of the person, or a relative of the partner
- A director or principal officer of a controlled corporation
- A corporation controlled by the person
In the case of corporations, the following entities are considered associates:
- A corporation over which the Hong Kong entity has control
- A corporation that has control over the Hong Kong entity; or
- A corporation under the same control as the Hong Kong entity
- A person controlling a corporate company and any partner of that person; and where such person is a natural person any relative of that person;
- A director or principal officer of that company or subsidiary and any relative of such director or officer;
- Any partner of the company and, where such partner is a natural person, any relative of such partner;
In case of partnerships, the following entities are considered associates:
- Any partner in the partnership;
- A relative of any partner;
- A corporation that is controlled by the partnership, or by a partner or any relative of a partner;
- A director or principal officer of a controlled corporation;
- A corporation whose director or principal officer is a partner in the Hong Kong partnership.
Hong Kong Withholding Tax on Payments to Non-Resident Entertainers or Sportsmen
The Hong Kong Withholding Tax is charged on payments that are made for the following:
- Performances made at a commercial event or occasion in Hong Kong.
- Participation in videos, films, sound recordings, television broadcasts (live or recorded) and radio transmissions.
The withholding taxes vary depending on whether the promoter or sponsor in Hong Kong made an agreement directly with the non-resident or the agent.
- For payments on agreements made directly with the non-residents, the rate is 10%.
- For payments on agreements made with an agent, the rate is 11% in case of a corporate agent and 10% in case of an individual or partnership.
Withholding Tax Rates in Hong Kong
|Royalties||Non-Resident Corporation||Non-Resident Individual|
|Fees to Entertainers and
|Direct Agreement||Agreement with Agent|
|10%||Individual or partnership||10%|
In conclusion, it is crucial that you are well aware of the Hong Kong Withholding Tax for your business. We understand that it is challenging for companies in Hong Kong to keep with the ongoing changes in the tax regime. Therefore at HKCR, our team of qualified tax professionals will take care of your company’s taxation needs. So what are you waiting for? Talk to us today and benefit from our comprehensive tax services.
- Are there any concessions under the Hong Kong Withholding Tax?
- Under the Double Tax Avoidance (DTA) agreements, the Hong Kong Withholding Tax is generally included in one of the clauses. This allows for a concessional rate or exemption from withholding taxes on specific payment types.
- Are dividends and interests subjected to the Hong Kong Withholding Tax?
- Dividends and interests are not subjected to the Hong Kong Withholding Tax.
- What is the Hong Kong Withholding Tax charged on royalties paid to corporations?
- The Hong Kong Withholding Tax charged on royalties paid to non-resident corporations is generally 16.5%. For non-resident companies without any association with Hong Kong companies, it is 4.95%.
- Is the Hong Kong Withholding Tax on payments to non-resident entertainers/sportsmen fixed?
- The Hong Kong Withholding Tax varies according to whether the promoter/sponsor in Hong Kong has made an agreement directly with the non-resident or agent.
For payments on agreements made directly with:
- Non-Residents: 10% rate
- Corporate Agent : 11% rate
- Individual/Partnership Agent: 10%
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