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 less 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 the kind of system that reflects Hong Kong’s position as a place that wants to be easy to do business with, but also wants to make sure it gets paid when non-residents are using Hong Kong as more than just a convenient incorporation jurisdiction.
So let’s 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 they’ve signed.
What is a Withholding Tax?
Withholding tax is a tax that must be deducted at the source. This means the payer is required to withhold part of the payment and submit it to the Inland Revenue Department in Hong Kong. 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?
An individual or company is considered non-resident if:
- The person has stayed in Hong Kong for fewer than 180 days in a tax year
- The company is managed or controlled from outside Hong Kong
Both individuals and corporate entities that meet these conditions may be subject to withholding tax based on the nature of the income they receive.
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% |
| 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?
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.
