Hong Kong Withholding Tax: What You Need To Know

Withholding tax is a critical aspect of Hong Kong’s tax system. Whether you’re in the process of establishing a business here or are already managing a company, a comprehensive understanding of this concept is imperative.

For that reason, today we will be delving into key details surrounding withholding tax, ranging from its definition to methods of minimizing this financial obligation for your business. Keep reading to learn more.

What is Hong Kong withholding tax?

Withholding tax in Hong Kong applies to non-residents for any services provided and carried out in Hong Kong. In other words, this tax is the portion of payments withheld from fees paid to a non-resident, received by the Inland Revenue Department.

Notably, this jurisdiction does not impose withholding tax on dividends, or interest. Hence, there is no Hong Kong dividend withholding tax.

Only certain types of payments are levied on this type of tax, such as for the use of, or the right to use, certain intellectual property.

Who needs to pay withholding tax in Hong Kong?

Non-residents, whether they are entities or individuals, will be liable to withholding tax in Hong Kong if they earn income from services or work conducted within the territory.

An individual or company is determined to be non-resident for tax purposes if:

• The individual is a foreigner who has resided or worked in Hong Kong for no more than 180 days in a tax year
• The company is centrally managed or controlled from outside the territory of Hong Kong.

Which types of payments are subject to withholding tax in Hong Kong?

Typical payments that may be subject to Hong Kong withholding tax include:

Royalty payments

Royalty payments are paid for the right to use the intellectual property of non-residents inside and outside of Hong Kong. Withholding taxes on these payments can vary depending on whether or not the non-resident is related to a Hong Kong entity.

Examples of Hong Kong royalty withholding tax or license fees are as follows:

• Payments for the exhibition or use in Hong Kong of cinematography or television film or tape, any sound recording, or any relevant advertising materials
• Fees for the use or usage right in Hong Kong, of any patent, design, trademark, secret process or formula, or other property or right of a similar nature
• Payments for imparting knowledge directly, or indirectly connected with the use in Hong Kong of any such patent, design, and above-mentioned categories

Entertainer or sportsman payments

Non-resident entertainers or sportsmen are subject to Hong Kong withholding tax on services if they gain income from:

• A performance at a commercial event in the region, or
• Taking part in sound recordings, films, videos, radio broadcasts, or television broadcasts (live or recorded).

Who is considered an entertainer or sportsman?

An entertainer or sportsman, in the context of taxation or legal definitions, refers to an individual (not a corporation) who engages in performances, either independently or as part of a group, portraying their role as an entertainer or participating in sports activities in Hong Kong.

What are the rates for Hong Kong withholding taxpayers?

Please find below information on the withholding tax rate for each type of payment based on their source.

For royalties derived from a Hong Kong “associate”

• 15% for non-resident individuals
• 8.25% – 16.5% for non-resident corporations

For royalties NOT derived from a Hong Kong “associate”

• 4.5% for non-resident individuals
• 2.475% – 4.95% for non-resident corporations

Regarding payments for performance, the withholding tax rate will depend on how the amount is obtained:

• Directly from the entertainer/ sportsman: 10%
• Through a non-resident individual or partnership: 10%
• Through a non-resident corporate agent or corporation: 11%

* Under the Inland Revenue Ordinance (amended in 2004) of Hong Kong, “associates” of a Hong Kong entity refers to the following entities:

If the Hong Kong entity is “a natural person”

• A person’s relative
• A person’s partner and any relative of that partner
• A partnership in which a person is a partner
• A corporation controlled by the person, a partner, or a partnership in which the person is a partner
• Any director or principal officer of any such corporation listed above

If the Hong Kong entity is “a corporation”

• A corporate company
  • A corporation over which the Hong Kong entity has control
  • A corporation that has control over the Hong Kong entity
  • A corporation under the same control as the Hong Kong entity
• A person who controls a corporate company and any partner of that person, and where either that person is a natural person, any relative of that person
• A director or principal officer of that company or the corporate company of that company; and any relative of any such director or officer
• Any partner of the company and, where such partner is a natural person, any relative of such partner

If the Hong Kong entity is “a partnership”

• Any partner of the partnership, and where such a partner is a partnership, any relative of that partner
• A corporation controlled by the partnership or by any partner thereof or, where such a partner is a natural person, any relative of such partner
• A corporation of which any partner is a director or principal officer
• Any director or principal officer of a corporation

Regarding WHT for entertainers or sportspersons, WHT payment depends on whom the non-resident entertainers or sportsmen made their agreement directly with (individuals or through a corporate agent or a corporation).

How to reduce Hong Kong withholding tax

Minimizing Hong Kong withholding tax involves understanding the regulations and leveraging any available exemptions. Among various methods, businesses or individuals often make use of Hong Kong’s Double Taxation Agreements to reduce their payable amount.

Hong Kong has successfully negotiated over 45 Comprehensive Double Tax Agreements (DTAs). Under such agreements, residents of participating countries can enjoy tax relief and reduction for tax liability levied on the same type of income.

In practical terms, you may have the opportunity to benefit from a foreign tax deduction on specified interest and gains if there is sufficient proof that you have already paid taxes on the same income in an eligible jurisdiction.

Hence, these treaties help you avoid double taxation and adjust the tax rights between Hong Kong and international jurisdictions.

Conclusion

As a non-resident entrepreneur in Hong Kong, understanding how withholding tax functions is essential for maintaining compliance with the laws. This not only allows you to use your resources wisely but also leverages many benefits from tax treaties and incentives provided by the government.

If you have any questions about doing business in Hong Kong, don’t hesitate to drop us a message in the pop-up chat or send us an email via service@bbcincorp.com. We’re here to offer you timely support!

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