Withholding Tax in Hong Kong

Resident and non-resident businesses are subject to the same tax rules. While Hong Kong maintains a tax-friendly environment with no dividend tax for both resident and non-resident businesses, companies are required to pay taxes on profits earned in or originating from Hong Kong.

Contributing Advisor

Mil Lui

Manager, Corporate Accounting Services

They are required to pay taxes on profits earned in or originating from Hong Kong.

When a company pays for services provided by someone or a business from outside Hong Kong, they need to hold back a part of that payment and send it to the Hong Kong Inland Revenue Department. The percentage of the amount withheld is the withholding tax.

Who is eligible for withholding tax?

Non-resident enterprises and individuals that derive income from a Hong Kong source for services rendered in Hong Kong are charged withholding tax.

• Non-resident enterprises are defined as companies in which central management and control are exercised from outside Hong Kong.
• Non-resident individuals are defined as foreigners who have stayed or worked in Hong Kong for less than 180 days in the tax year.

Which payments are subject to withholding tax?

Not all payments are subject to withholding tax in Hong Kong. There is no withholding tax on interest and dividends from investments, deposits, and shareholding, meaning businesses do not face a dividend tax for investments or shareholding returns. Royalties and certain performance service fees are subject to withholding tax in Hong Kong.

Withholding tax for royalties

Royalties include fees for using, distributing, or exhibiting copyrighted materials (recorded music, books, films, marketing materials, and the like), patents and trademarks, and intellectual property (IP).

Withholding tax for royalties paid to non-resident enterprises

• When making royalty payments to non-resident companies that are closely connected, a withholding tax of 16.5 percent applies. However, if any other businesses in Hong Kong have never owned intellectual property (IP), a reduced rate of 4.95 percent is applicable.
• For royalty payments to non-resident companies with no close connections, a withholding tax rate of 4.95 percent is imposed.
• If a Hong Kong company previously owned the same IP held by a non-resident company, the entire royalty amount could be considered part of the Hong Kong company's taxable income.

Withholding tax for royalties paid to non-resident individuals

• Royalty payments to affiliate non-resident individuals face a withholding tax rate of 15 percent.
• Royalty payments to unaffiliated non-resident individuals are subject to a withholding tax rate of 4.5 percent.

Definition of “associate”

The following entities are regarded as ‘associates’ of a Hong Kong entity:

If the Hong Kong entity is a natural person:

• Relatives of the person;
• Partners of the person or the partners’ relatives;
• Partnerships in which the person is a partner; or
• Corporations are controlled by the person or directors of the controlled corporation.

If the Hong Kong entity is a corporation:

• Associated corporations that control the Hong Kong entity, under the Hong Kong entity’s control, or under the same control as the Hong Kong entity;
• Individuals who control the Hong Kong entity, partners of the controller, or relatives of the controller or partner;
• Directors of the Hong Kong entity (or any associated corporations), or relatives of the director; or
• Partners of the corporation or relatives of the partner.

If the Hong Kong entity is a partnership:

• All partners in the partnership or the partners’ relatives;
• Corporations that are controlled by the partnership, or by a partner or any relative of a partner;
• Directors of a controlled corporation; or
• Corporations whose director is a partner in the Hong Kong partnership.

Withholding tax for service fees

Service charges paid to non-residents who provide performances (such as entertainers and sportsmen) are subject to withholding tax in Hong Kong. The taxable performance service fees include:

• 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 nature of the contracts signed determines the rate:

• For contracts made directly between a non-resident performer and the organizer, the rate is set at 10 percent.
• For contracts between a non-resident third-party agent and the organization, a withholding tax rate of 10 percent applies if the agent is an individual, and a withholding tax rate of 11 percent applies if the agent is a corporation.

Withholding tax rates

Here are the Hong Kong withholding tax rates for different payment categories:

Double tax treaties

Double tax treaties may offset taxes withheld if the jurisdiction has one with Hong Kong. However, as Hong Kong does not impose any dividend tax, these treaties generally do not apply to dividend payments. Hong Kong has so far entered 45 treaties with different jurisdictions, and withholding tax rates vary by treaty and jurisdiction. In most situations, the rate is between 2.475 percent and 4.95 percent.