If you’re not from Hong Kong but you’re making money here, Hong Kong would like some of that money, please.
The good news is that Hong Kong only withholds tax on a few specific types of payments to non-residents: royalties and payments to entertainers and athletes.
The not-so-good news is that figuring out the exact rate involves navigating a decision tree that would challenge a McKinsey consultant: Are you an individual or company? Is the payer your associate? Are you performing live or just licensing your likeness? Did you stay in Hong Kong for 179 days or 180? It’s a system designed to keep Hong Kong business-friendly while ensuring non-residents don’t simply extract value tax-free.
I’ll break down exactly when Hong Kong wants its cut, how much it takes, and when you might be able to negotiate a better deal through those 40+ tax treaties with other countries Hong Kong has signed.
What is a Withholding Tax?
Withholding tax is deducted at the source – meaning the payer submits part of the payment directly to Hong Kong’s Inland Revenue Department, rather than the recipient handling it themselves. It generally applies to payments made to non-residents for services or for the use of intellectual property in Hong Kong.
Who Qualifies as a Non-Resident?
You’re considered a non-resident if you’re an individual who has spent fewer than 180 days in Hong Kong in a tax year, or you’re a company managed and controlled from outside Hong Kong.
What Types of Income Are Subject to Withholding Tax?
There are two main categories of income that are subject to withholding tax in Hong Kong:
1. Royalties
Royalties paid to non-residents for using intellectual property in or from Hong Kong are taxable. These may include payments for:
- Sound recordings, films or broadcast content
- Patents, trademarks, copyrights and design rights
- Know-how, formulas and technical knowledge
- Advertising materials connected to licensed content
The applicable rate depends on whether the payment is made to a person or a company and whether the payer is an associate of the recipient.
2. Payments to Entertainers and Athletes
Non-resident entertainers or athletes are taxed on income earned from performances or appearances in Hong Kong. This applies to both live and recorded activities whether commercial or not.
Examples include:
- Live performances, concerts and matches held in Hong Kong
- Participation in local film or audio recordings
- Television, radio or digital appearances
What are the Withholding Tax Rates?
The withholding tax rates vary depending on the nature of the payment and the recipient’s status.
| Payment Type | Non-resident Individual | Non-resident Corporation |
|---|---|---|
| Royalties from a Hong Kong associate | 15% | 8.25% to 16.5% (lower rate applies to the first HK$2M of assessable profits under the two-tier regime) |
| Royalties not from a Hong Kong associate | 4.5% | 2.475% to 4.95% |
| Direct payment to entertainer or athlete | 10% | Not applicable |
| Payment through a non-resident agent or partnership | 10% | Not applicable |
| Payment through a non-resident company | Not applicable | 11% |
What is an Associate?
Whether a payer and recipient are “associates” significantly affects your withholding rate, so it’s worth understanding the definition clearly.
The term “associate” is defined by ownership or control. For example:
- A relative or partner of an individual
- A corporation controlled by or controlling the Hong Kong entity
- Companies under common control
- A partner in a partnership or a relative of a partner
Whether a payer and recipient are considered associates directly affects the withholding rate.
Are There Any Exemptions?
Hong Kong does not impose withholding tax on dividends or interest. Additionally, the city has signed over 40 double taxation agreements that may reduce or eliminate withholding tax for qualifying non-residents. Tax treaty provisions take precedence over domestic rules so businesses should always check their eligibility under a treaty before applying any rates.
Need Help Navigating Withholding Tax? Monx Has You Covered
While Hong Kong’s tax structure is relatively simple, withholding tax is one area where non-residents need to be careful. It applies in limited cases but the rates and rules can vary depending on specific conditions.
If your business is receiving or making payments connected to Hong Kong, Monx can help you assess your withholding tax obligations, apply tax treaty relief if applicable and stay compliant with the Inland Revenue Department.
