Under the territorial tax system of Hong Kong, only profits generated within the territory are taxed regardless of the taxpayer’s residency. Non-resident individuals or entities earning income from Hong Kong such as through services rendered locally must pay withholding tax which is deducted by the payer and remitted to the Inland Revenue Department. This tax applies exclusively to non-residents and ensures compliance with local tax obligations. In this guide, we will explore the overview of Hong Kong’s withholding tax regulations, and their scope, applicable payments, tax rates and key considerations.
Content Outline
Key Summary
Territorial Tax System
Hong Kong taxes only profits generated within its territory, regardless of the taxpayer’s residency status
Withholding Tax for Non-Residents
Withholding tax applies exclusively to non-residents earning income from Hong Kong, such as royalties, performances, or final salaries.
Obligations of the Payer
Businesses or employers must deduct the withholding tax from payments and remit it to the Inland Revenue Department (IRD) on behalf of non-residents.
Withholding Tax Rates
Tax rates vary based on the type of payment, such as 4.95% for corporate royalties and 10-11% for non-resident entertainers.
Reduction Through DTAs
Hong Kong’s double taxation agreements offer opportunities to reduce withholding tax, but compliance with IRD procedures is essential to qualify for these benefits.
What is Withholding Tax?
Withholding tax in Hong Kong means income tax that the taxpayer takes out from a payment to a recipient and remits straight to the Hong Kong government. This system makes sure tax obligations are met at the point of transaction particularly when payments are made to non-residents.
What Income Is Subject To Withholding Tax?
Non-Hong Kong residents pay withholding tax on several types of income. These include:
Royalty Payments
- Payment for the right to use intellectual property (IP) in Hong Kong.
- Non-Hong Kong residents pay withholding tax on deductible royalty payments.
Sportspeople and Entertainer Payments
- Payment made to non-Hong Kong entertainers, athletes, or performers for events in Hong Kong.
- This covers amounts paid to organizers or agents to assign rights linked to these performances.
Other payments that get taxed include:
- Final salaries to employees leaving Hong Kong.
- Proceeds from consignment sales made on behalf of non-residents.
Who Must Pay Hong Kong Withholding Tax?
The Hong Kong Inland Revenue Department (IRD) requires the payer of the income (eg. businesses or employers) to withhold tax and remit to the government. The payer becomes responsible for the tax filing and payment obligations on behalf of the non-resident.
What Are The Withholding Tax Rates?
Withholding tax rates in Hong Kong is different depending on the type of payment and the business arrangement.
| Type of Payment | Withholding Rate / Amount |
| Royalty / License Fee | 4.95% (corporation) / 4.5% (unincorporated business) |
| Performer’s Right Assignment | Based on actual profits / % agreed with IRD |
| Final Salary for Departing Employee | Entire amount withheld until IRD issues release letter |
| Non-Hong Kong Entertainer/Sportsman Remuneration | 10% (direct)/ 11% (through an incorporated agent) |
| Consignment Sales Proceeds | 1% of sale proceeds (subject to IRD approval for reduction) |
Table Of Withholding Tax Rates For Various Countries
Hong Kong has established 50 double taxation agreements (DTAs) with other jurisdictions which aimed at minimizing withholding tax rates. This table below highlights the applicable withholding tax rates for payments made to both treaty and non-treaty jurisdictions.
| Recipient/ Country | Dividends (1) | Interest (1) | Royalties (2) |
| Non-treaty | 0 | 0 | 2.475 to 4.95 (2) |
| Armenia (8) | 0 | 0 | 2.475 to 4.95 (5) |
| Austria | 0 | 0 | 2.475 to 3 (3) |
| Bahrain (8) | 0 | 0 | 2.475 to 4.95 (5) |
| Bangladesh (8) | 0 | 0 | 2.475 to 4.95 (5) |
| Belarus | 0 | 0 | 2.475 to 3 (4)/2.475 to 4.95 (5) |
| Belgium | 0 | 0 | 2.475 to 4.95 (5) |
| Brunei | 0 | 0 | 2.475 to 4.95 (5) |
| Cambodia | 0 | 0 | 2.475 to 4.95 (5) |
| Canada | 0 | 0 | 2.475 to 4.95 (5) |
| China, the People’s Republic of | 0 | 0 | 2.475 to 4.95 (5) |
| Croatia (8) | 0 | 0 | 2.475 to 4.95 (5) |
| Czech Republic | 0 | 0 | 2.475 to 4.95 (5) |
| Estonia | 0 | 0 | 2.475 to 4.95 (5) |
| Finland | 0 | 0 | 2.475 to 3 (3) |
| France | 0 | 0 | 2.475 to 4.95 (5) |
| Georgia | 0 | 0 | 2.475 to 4.95 (5) |
| Guernsey | 0 | 0 | 2.475 to 4 (6) |
| Hungary | 0 | 0 | 2.475 to 4.95 (5) |
| India | 0 | 0 | 2.475 to 4.95 (5) |
| Indonesia | 0 | 0 | 2.475 to 4.95 (5) |
| Ireland | 0 | 0 | 2.475 to 3 (3) |
| Italy | 0 | 0 | 2.475 to 4.95 (5) |
| Japan | 0 | 0 | 2.475 to 4.95 (5) |
| Jersey | 0 | 0 | 2.475 to 4 (6) |
| Korea | 0 | 0 | 2.475 to 4.95 (5) |
| Kuwait | 0 | 0 | 2.475 to 4.95 (5) |
| Latvia | 0 | 0 | 0/2.475 to 3 (7) |
| Liechtenstein | 0 | 0 | 2.475 to 3 (3) |
| Luxembourg | 0 | 0 | 2.475 to 3 (3) |
| Macau SAR | 0 | 0 | 2.475 to 3 (3) |
| Malaysia | 0 | 0 | 2.475 to 4.95 (5) |
| Malta | 0 | 0 | 2.475 to 3 (3) |
| Mauritius (9) | 0 | 0 | 2.475 to 4.95 (5) |
| Mexico | 0 | 0 | 2.475 to 4.95 (5) |
| The Netherlands | 0 | 0 | 2.475 to 3 (3) |
| New Zealand | 0 | 0 | 2.475 to 4.95 (5) |
| Pakistan | 0 | 0 | 2.475 to 4.95 (5) |
| Portugal | 0 | 0 | 2.475 to 4.95 (5) |
| Qatar | 0 | 0 | 2.475 to 4.95 (5) |
| Romania | 0 | 0 | 2.475 to 3 (3) |
| Russia | 0 | 0 | 2.475 to 3 (3) |
| Saudi Arabia | 0 | 0 | 2.475 to 4.95 (5) |
| Serbia | 0 | 0 | 2.475 to 4.95 (5) |
| South Africa | 0 | 0 | 2.475 to 4.95 (5) |
| Spain | 0 | 0 | 2.475 to 4.95 (5) |
| Switzerland | 0 | 0 | 2.475 to 3 (3) |
| Thailand | 0 | 0 | 2.475 to 4.95 (5) |
| United Arab Emirates | 0 | 0 | 2.475 to 4.95 (5) |
| United Kingdom | 0 | 0 | 2.475 to 3 (3) |
| Vietnam | 0 | 0 | 2.475 to 4.95 (5) |
What Entities Are Considered Associates?
Entities that share control or have substantial influence over one another are considered associates under Hong Kong tax law. This includes parent companies, subsidiaries, and joint ventures. These connections might result in higher withholding tax rates because of anti-tax avoidance rules.
Consequences Of Failing To Withhold Tax
If you don’t follow Hong Kong’s rules on withholding tax, you could face severe penalties:
- Fines and penalties: if you don’t withhold the right amount of tax.
- Prosecution: when you fail to meet tax filing requirements (eg. Form IR56G).
- Liability transfer: If the non-resident doesn’t pay, you as the payer become liable for the full tax amount.
For instance, companies that don’t submit the IR56G form on time when an employee leaves Hong Kong might face consequences.
Can Withholding Tax Be Reduced?
Hong Kong’s double tax treaties provide opportunities for reducing withholding tax rates. Non-residents could benefit from:
- Lower royalty tax rates under Hong Kong’s DTAs.
- Two-tiered profits tax system which means the first HKD 2 million of profits has a tax rate of half the normal rate.
- Negotiation with the IRD; if actual profits fall below expectations, taxpayers can ask to adjust the rate.
But the final decision on any reduction will depend on submitting the right tax returns and negotiating with the IRD. Until the approval is given, the law requires withholding at the statutory rate.
Conclusion
Withholding tax in Hong Kong helps enforce tax compliance when companies pay non-residents. It applies to various income types such as royalties, final salaries, and fees for performers. Companies need to know the applicable rates and rules to avoid fines to keep their operations running . Hong Kong’s double tax agreements can lower tax bills, but businesses must file taxes to take advantage of these benefits.To comply with Hong Kong’s withholding tax laws without hassle, companies can get expert help from FastLane Group. Get in touch with us now for top-notch advice on handling your company’s tax duties. Schedule a meeting with us today!