Withholding tax in Hong Kong is tax payments for non-Hong Kong residents. The tax rates differ according to payment categories and payment types. It ranges between 4.5% to 16.5%. Hong Kong is also in double taxation treaty agreements with 46 other countries in order to avoid double taxation.
Are you a business looking to make payments to a non-resident in Hong Kong? Or are you a non-resident located overseas working for a company in Hong Kong looking to learn more about Hong Kong withholding tax?
If so, this is the right place. This guide discusses more about Hong Kong withholding tax, its scope, different rates, and the double tax treaties.
Hong Kong Tax System
Hong Kong uses a territorial taxation system, wherein taxes are imposed exclusively on profits generated within its borders from conducting trade, business, or professional activities.
This territorial approach applies to both residents and non-residents. Regardless of residency, any foreign company or individual earning income from services rendered or work performed in Hong Kong must fulfil their tax responsibilities in the region.
💡 Tip: If you own or operate a business in Hong Kong, we have a detailed guide explaining Hong Kong’s corporate tax rate for 2023.
What is Hong Kong’s Withholding Tax?
In cases where a company or individual based in Hong Kong disburses payments to a non-resident entity for services conducted within Hong Kong, a designated fraction of the payment needs to be retained and remitted to the Hong Kong Inland Revenue Department. This fraction of retained payment is known as the withholding tax.
The withholding tax exclusively pertains to non-resident entities, including companies and individuals.
Scope of Hong Kong Withholding Tax
The withholding tax is the tax imposed on a non-resident entity that earns income from a source in Hong Kong due to services provided or work conducted within Hong Kong.
For tax considerations, non-resident individuals are not residents and have spent fewer than 180 days in Hong Kong during the tax year.
A non-resident corporation is defined as a company whose primary management and control originate outside Hong Kong. Primary management and control refers to the highest level of authority the board of directors exercises.
Withholding tax in Hong Kong only applies to specific categories of payments, such as royalties and fees disbursed to non-resident performers or athletes for their engagements in Hong Kong.
Dividends and interest, however, are not subject to withholding taxes.
Hong Kong Withholding Tax Rates
|Payment Category||Type of Payment||Withholding Tax Rate|
|Royalty Payments||Non-resident companies that are associates||16.5%|
|Royalty Payments||Non-resident companies that are not an associate||4.95%|
|Royalty Payments||Non-residents who are associates||15%|
|Royalty Payments||Non-residents who are not associates||4.5%|
|Entertainers or Sportsmen||Directly with non-resident entertainers or sportsmen||10%|
|Entertainers or Sportsmen||Through an individual or partnership non-resident agent||10%|
|Entertainers or Sportsmen||Through a non-resident company agent||11%|
|Dividends and Interest||Not Applicable||Not Applicable|
Royalty Payments Withholding Tax
Payments of royalties to a non-resident entity or individual for utilising intellectual property within and beyond the borders of Hong Kong are liable to undergo withholding tax.
The withholding tax percentages related to royalty disbursements differ based on whether the non-resident beneficiaries are affiliated or non-affiliated with the Hong Kong company.
Royalty payments include:
- Payment acquired from showcasing or utilizing films, tape recordings, sound recordings, or any affiliated promotional materials within Hong Kong;
- Payment acquired for the utilization or authorization to use any patent, design, trademark, copyrighted material, confidential formula, or analogous property within or beyond Hong Kong; or
- Payments acquired for disseminating knowledge associated with using intellectual property within or beyond Hong Kong.
What is the Meaning of 'Affiliate'?
If the Hong Kong entity is a:
- A family member of the person
- Partner of the person, or relative of the partner
- Partnership whereby the person is a partner
- A company controlled by the person
- Director or principal officer of a controlled company
- An affiliated company includes: A company under the control of the Hong Kong entity, exerting control over the Hong Kong entity, under shared control with the Hong Kong entity
- An individual controlling the corporation, a partner of the controller, or a family member of the controller or partner.
- A director or chief executive of the corporation (or any linked corporation) or a family member of said director or officer.
- A partner of the corporation or a partner's family member.
- Any member of the partnership
- A family member of any partnership member
- A corporation under the control of the partnership, a partner, or any family member of a partner
- A director or chief officer of a controlled corporation
- A corporation with a director or chief officer who is a partner in the Hong Kong partnership.
💡 Tip: Here is a guide regarding the main types of legal entities in Hong Kong.
Royalty Payments Withholding Tax Rates to Non-Resident Companies
The withholding tax rate for affiliated non-resident companies: Typically, the withholding tax rate applied to royalty payments made to a non-resident company associated with the Hong Kong entity stands at 16.5%. This 16.5% withholding tax rate prevents individuals from minimizing their tax obligations in Hong Kong through arrangements with linked companies or individuals.
It's important to recognize that utilising the 16.5% withholding tax rate is subject to limitations. It does not come into play for royalty payments directed to a Hong Kong company or individual affiliated with it if the Inland Revenue Department determines that "no entity engaged in a trade, profession, or business in Hong Kong has ever fully or partially owned the relevant intellectual property." In such situations, a reduced withholding tax rate of 4.95% will be in effect.
The withholding tax rate for unaffiliated non-resident companies: The withholding tax rate for royalties attributed to non-resident companies that lack affiliations with the Hong Kong company amounts to 4.95%.
Royalty Payment Withholding Tax Rates to Non-Resident Individuals
For non-resident individuals affiliated with the entity: A withholding tax rate of 15% applies to royalty payments.
For non-resident individuals without affiliations: A withholding tax rate of 4.5% is imposed on royalty payments.
Entertainers and Sportsmen Withholding Tax
Tax withholding is required for payments owed to non-resident entertainers or sportspeople in the following scenarios:
- Their participation in a commercial event or function in Hong Kong.
- Their involvement in activities like sound recordings, films, videos, radio, and TV broadcasts, regardless of whether they are live or pre-recorded.
The withholding tax rate varies based on whether the Hong Kong event organiser or sponsor directly engaged with the non-resident entertainer or sports figure or if the arrangement was established with a non-resident agent representing the non-resident entertainer or sportsman.
Entertainers and Sportsmen Withholding Tax Rates
In cases where contracts are established directly with a non-resident entertainer or sports figure, a withholding tax rate of 10% will be implemented.
For agreements formed with a non-resident agent:
- A withholding tax rate of 10% will be in effect if the non-resident agent is an individual or a partnership.
- A withholding tax rate of 11% will be in effect if the non-resident agent is a company.
Double Tax Relief
A Double Tax Relief (DTR), also known as Double Tax Treaties, is a mutual arrangement between two countries designed to prevent the occurrence of double taxation on income. The primary objective of a DTR is to adjust the tax obligations of the involved nations. In most cases, DTRs take precedence over domestic law.
At the time of writing, Hong Kong has entered into 46 double tax treaties with different jurisdictions, as shown below:
|China, the People's Republic of||Latvia||Serbia|
|Czech Republic||Liechtenstein||South Africa|
|Georgia||Malta||United Arab Emirates|
*Effective from the year of assessment 2024/25
Understanding withholding tax in Hong Kong is crucial as it impacts payments to non-resident entities for services provided or intellectual property use. Knowing the rates and regulations ensures compliance and avoids tax-related issues for businesses and individuals engaged in cross-border transactions. Knowing the rates being charged to your payments is also important for non-resident entities.
Who is considered a non-resident in Hong Kong?
What is liable to withholding tax in Hong Kong?
Does Hong Kong have any withholding tax relief?
What is the withholding tax rate in Hong Kong?