Here’s What You Need To Know About Hong Kong Withholding Tax

What is Withholding Tax?

Simply put, the withholding tax Hong Kong charges is a levy charged on payments made to a non-resident company in Hong Kong. However, this tax only applies to income derived in Hong Kong.

This payment may be made by will be made by a resident company. This taxation is sent to the Inland Revenue Department.

You’d do well to note that this levy is on charges on non-resident companies and individuals. Non-residents are companies or individuals who stayed in Hong Kong for less than 180 days during that tax year.

This type of company will have its central management situated outside Hong Kong. Central management means the topmost level of authority in the entity, such as the board of directors.

Not all payments are subject to the regulations of withholding tax Hong Kong follows. You’ll need to identify which payments fall into this category to avoid falling short of the law.

Types of Income Subjected to Withholding Tax in Hong Kong

The types of income subject to the system of withholding tax Hong Kong uses include royalties and fees paid to entertainers and athletes. This tax will be charged on performances that occur in Hong Kong. You must note that withholding tax does not apply to dividends and interest.

Royalties

Royalty payments to non-residents for using their intellectual property will be subjected to the system of withholding tax Hong Kong uses. Common examples of royalties include:

• Compensation for the use or exhibition of video production, tapes or television film
• Compensation for the use of Musical Recordings
• Compensation for the use of content that’s related to advertising material in Hong Kong
• Compensation for the use of Trademark, Design, copyright material, patent, performer’s right or formula
• Compensation for Intellectual property used inside and outside Hong Kong

The rates of withholding tax Hong Kong uses for royalty payments depend on whether the non-resident entity is an associate or non-affiliate of the resident firm.

Who is an associate or affiliate?

The following defines the meaning of associates or affiliates of Hong Kong firms:

1. If the Hong Kong entity is an individual:
   • A relative of the entity
   • The entity’s partner or relative of the partner
   • A partnership agreement
   • A firm controlled by the entity
   • A director or principal officer of an entity
2. If the entity is a corporation:
   • Any associate firm – firms controlled by the entity, firms that control the entity, or a firm controlled by the same parent as the entity
   • Anyone who controls the corporation, a partner to the controller, or any relative of the partner or controller
   • A partner of the corporation, or any relative of this partner
3. If the entity is a partnership:
   • Any of the partners in this partnership
   • A relative of any of the partners
   • Any firm that is controlled by the partnership, by a partner or by relatives of the partner
   • A director or principal officer of any entity controlled by the partnership
   • Any entity whose director or principal officer is a partner of the partnership

Who Must Pay Withholding Tax in Hong Kong?

You’re expected to pay the withholding tax Hong Kong charges if you’re a non-resident company or individual selling goods or services in Hong Kong. A non-resident Hong Kong company or individual is anyone that:

• Has stayed or worked in Hong Kong for less than 180 days during the financial year
• Is managed or controlled outside Hong Kong

Hong Kong Withholding Tax Rates

This table describes the rates of withholding tax Hong Kong levies in the region:

1. Withholding Tax Rate For Non-Resident Companies

The following rates of withholding tax Hong Kong uses apply to non-resident companies in Hong Kong:

• Withholding tax rates for associate non-resident companies: Any associate non-resident company that receives royalty payments will be charged at a tax rate of 16.5%. The IRD charges a rate of 16.5% to make it more difficult for taxpayers to minimize their Hong Kong tax liability. They won’t enjoy any special tax benefits by dealing with associated companies.
• However, you should note that the withholding tax rate of 16.5% applies only in certain scenarios. This tax rate does not apply to associate companies classified by the IRD as having at any point of time fully or partially owning any relevant intellectual properties. The rate of withholding tax Hong Kong charges for these companies is 4.95%.
• Withholding tax rate for non-associate, non-resident companies: Royalty payments made to non-associate, non-resident companies will be taxed at a rate of 4.95%.

2. Withholding Tax Rate For Non-Resident Individuals

The following withholding tax rates apply to payments to non-resident individuals in Hong Kong:

• Withholding tax rate for affiliate non-resident individuals: Payments made to affiliate non-resident individuals are charged at 15%.
• Withholding tax rate for non-affiliate non-resident individuals: Payments made to non-affiliate non-resident individuals are charged at 4.5%

3. Withholding Tax Rate For Payment Made To Non-Resident Athletes and Entertainers

Withholding tax will be charged for the following payments made to athletes and entertainers;

• Performances at commercial events within Hong Kong
• Any role played in the production of films, radio transmissions, television broadcasts, videos, and sound recordings (live or recorded)

The tax rate will depend on whether the entertainer entered an agreement directly with the non-resident entertainer or athlete or dealt with a non-resident agent (representative of the athlete or entertainer).

The rates for withholding tax Hong Kong uses are as follows for entertainers and athletes:

• Any agreements made with non-resident entertainers and athletes will be charged at a withholding tax rate of 10%
• Any agreements with non-resident agents will be charged at a withholding tax rate of:
  • 10% if the non-resident agent is an individual
  • 11% if the non-resident agent is a company