Hong Kong Withholding Tax Guide – Individuals or Companies Must Know
Hong Kong may not have any withholding tax in its jurisdiction, due to the territorial system which is abides by.
Based on the territorial system, there is distinguishing difference between non-residents and residents. Any non-resident in Hong Kong (whether it is a company or an individual) which receives an income from a Hong Kong source is liable for taxes.
Taxes in Hong Kong are levied based on the profits derived from trade, a profession or business in the country. To prevent incomes from being tax double, Hong Kong has double tax treaty agreements with more than 30 countries. Each of these treaties would come with specific conditions for the withholding tax agreement which is made between Hong Kong and the country in question.
Hong Kong resident companies or individuals who make specific payments to a non-resident entity will have part of the payment withheld. This payment will be made to the Hong Kong Inland Revenue Department. This withheld percentage is known as withholding tax.
What Is a Hong Kong Withholding Tax?
In Hong Kong, withholding taxes are only applicable to individuals or companies who are considered non-resident. These taxes are charged to non-residents for any services or work which has been conducted and provided in Hong Kong.
Foreigners who have lived and worked in Hong Kong for less than 180-days in a tax year are considered non-resident individuals. Not all payments will be subjected to withholding taxes in Hong Kong. Examples of payment which are subjected to withholding taxes include royalties and any fees which gets paid to non-resident sportsmen and entertainers for their services conducted in the country. Dividends and interests are not subjected to withholding taxes.
Royalties are payments which are made to non-residents in Hong Kong. These payments are for the right to use the intellectual property of these non-residents both in and outside the country. Withholding taxes on royal payments will depend on whether the non-resident is associated or affiliated with a company based in Hong Kong.
Hong Kong withholding taxes for royalties made to non-resident companies is 16.5% in general. This is meant to minimize the taxpayer’s tax liability. The rate of Hong Kong withholding taxed paid to non-resident companies which are not associated with any Hong Kong company is 4.95%.
Hong Kong withholding taxes which are paid to non-resident individuals is 15% in general for individuals who are affiliated. The withholding tax rate for non-resident individuals who are not affiliated is 4.5%.
What Constitutes as A Royalty Payment?
Royalty payments include payments which are received from:
- Use or exhibition of films
- Use of sound recordings
- Use of tape recordings
- Use of related advertising material in Hong Kong
- Use of patents
- Use of designs or trademarks
- Use of copyrighted material
- Any knowledge which is used in connection with intellectual property both inside and outside Hong Kong
Who Is Considered An “Associate”?
In Hong Kong, the following entities are considered “associates” if they are a natural person:
- 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 Hong Kong, the following entities are considered “associates” if they are corporation:
- A person who controls the corporation, or a partner of the controller, or a relative of the controller or partner.
- A partner of the corporation, or a relative of the partner.
- A director or principal officer of the corporation (or any associated corporation), or a relative of the director or officer.
- Any partner in the partnership.
- A director or principal officer of a controlled corporation.
- A relative of any partner.
- A corporation whose director or principal officer is a partner in the Hong Kong partnership.
- A corporation that is controlled by the partnership, or by a partner or any relative of a partner.
Hong Kong Withholding Tax Paid to Non-Resident Entertainers or Sportsmen
Hong Kong withholding taxes is the portion of the payment which is withheld for fees that must be paid to non-resident sportsmen or entertainers in Hong Kong. The payments are made for the following services by these individuals:
- 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 Hong Kong withholding taxes here would vary. It would depend on whether the promoter or sponsor in Hong Kong made an agreement directly with the non-resident or with the agent. For agreements made directly with the non-residents, the Hong Kong withholding tax rate would be 10%. For agreements which are made with the agent, a rate of 11% would be charged for the withholding tax.