Hong Kong Withholding Tax
Hong Kong follows a territorial system of taxation; tax is levied only on profits arising in or derived from carrying on a trade, business or profession in Hong Kong.
The territorial principle does not distinguish between residents and non-residents. A non-resident company or individual that derives income from a Hong Kong source, for services provided or work done in Hong Kong, is liable to pay tax in Hong Kong. When a Hong Kong-resident company or individual makes specific types of payments to a non-resident entity for services rendered in Hong Kong, a certain portion of the payment must be withheld and paid to Hong Kong’s Inland Revenue Department.
The percentage of amount withheld is the withholding tax. Note that withholding tax is only applicable to non-resident companies or individuals. This guide provides an overview of Hong Kong’s withholding tax rules including scope of withholding tax, payments that are subject to withholding tax, withholding tax rates, etc. Note that the information provided is for general guidance only and not meant to replace professional advice.
Scope of withholding tax in Hong KongWithholding tax is the tax charged to a non-resident entity that derives income from a Hong Kong source for services provided or work done in Hong Kong. For tax purposes, non-resident individuals are foreigners who have stayed or worked in Hong Kong for less than 180 days in the tax year. A non-resident company is one whose central management and control is exercised from outside Hong Kong. Central management and control refers to the highest level of control exercised by the board of directors. Only specific types of payments are subject to withholding tax in Hong Kong such as royalties and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong. There are no withholding taxes levied on dividends and interest.
Withholding tax for royaltiesRoyalty payments made to a non-resident company or individual for the use of intellectual property both in and outside Hong Kong are subject to withholding tax. The withholding tax rates for royalty payments vary depending upon whether the non-resident recipients are associates or non-affiliates of the Hong Kong company.
Withholding tax for royalties due to non-resident companies
- Withholding tax rate for non-resident companies that are associates: Generally, the withholding tax rate for royalty payments due to a non-resident company that is an associate of the Hong Kong entity is 16.5%. The objective behind levying a 16.5% withholding tax rate is to prevent taxpayers from minimizing their Hong Kong tax liability by entering into arrangements with associated companies or individuals. However, it must be noted that the withholding tax rate of 16.5% is restricted in its application. It does not apply to royalty payments made to an associate Hong Kong company or individual if the Inland Revenue Department is satisfied that “no person carrying on a trade, profession or business in Hong Kong has at any time wholly or partly-owned the relevant intellectual property.” In such cases a reduced withholding tax rate of 4.95% will apply.
- Withholding tax rate for non-resident, non-associate companies: The withholding tax rate for royalties due to non-resident companies that are not associates of the Hong Kong company is 4.95%.
Withholding tax for royalties due to non-resident individuals
- Withholding tax rate for affiliate non-resident individuals: A withholding tax of 15% applies on royalty payments due to affiliate non-resident individuals.
- Withholding tax rate for non-affiliate, non-resident individuals: A withholding tax rate of 4.5% applies to royalty payments due to unaffiliated non-resident individuals.
Royalty payments include:
- Payments received from the exhibition or use of films, tape recordings, sound recordings, or any related advertising materials in Hong Kong;
- Payments received for the use of or right to use any patent, design, trademark, copyright material, secret formula or other similar property in or outside Hong Kong; or
- Payments received for imparting knowledge connected with the use of intellectual property in or outside Hong Kong.
Meaning of ‘associate’
The following entities are regarded as ‘associates’ of the Hong Kong entity:
- If the Hong Kong entity is a natural person:
- A relative of the person;
- A partner of the person, or a relative of the partner;
- A partnership in which the person is a partner;
- A corporation controlled by the person; or
- A director or principal officer of a controlled corporation.
- If the Hong Kong entity is a corporation:
- An associated corporation; i.e.
- 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 who controls the corporation, or a partner of the controller, or a relative of the controller or partner;
- A director or principal officer of the corporation (or any associated corporation), or a relative of the director or officer;
- A partner of the corporation, or a relative of the partner.
- An associated corporation; i.e.
- If the Hong Kong entity is a partnership:
- 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.
Withholding tax for fees due to non-resident entertainers or sportsmen
Tax must be withheld for fees due to a non-resident entertainer or sportsman for:
- A performance at a commercial event or occasion in Hong Kong, or
- Any participation in sound recordings, films, videos, radio transmissions, and television broadcasts (whether live or recorded).
The withholding tax rate varies depending upon whether the Hong Kong promoter or sponsor entered into an agreement directly with the non-resident entertainer or sportsman; or if the agreement was made with a non-resident agent i.e. the representative of a non-resident entertainer or sportsman. The rates of withholding tax are as follows:
- For agreements that are made directly with a non-resident entertainer or sportsman, a withholding tax rate of 10% will apply.
- For agreements that are made with a non-resident agent:
- A withholding tax rate of 10% will apply if the non-resident agent is an individual or partnership; or
- A withholding tax rate of 11% will apply if the non-resident agent is a company.
Double tax treaties and withholding tax
Hong Kong has concluded tax treaties with more than 30 countries in order to eliminate double taxation of income. Every tax treaty will specify the conditions for withholding tax between Hong Kong and the treaty country. For details, please refer to Hong Kong Double Tax Treaties Guide.