Still get confused about what withholding tax is in Hong Kong, who are required to pay this and how to reduce this type of tax? Keep reading this article and then find out the answer.
1. What is Hong Kong withholding tax?
Withholding tax is applicable to Hong Kong non-residents for any services that have been provided and carried out in Hong Kong.
In other words, Hong Kong withholding tax is the portion of the payments withheld from the fees paid to a non-resident. Hong Kong’s Inland Revenue Department is the one to receive that amount.
Hong Kong does not impose withholding tax on dividends and interest. Only certain types of payments are levied on this type of tax.
2. Who needs to pay withholding tax in Hong Kong?
Hong Kong follows the territorial system of taxation. Accordingly, taxes in Hong Kong are levied based on the profits derived from trade, a profession, or business in the country.
Non-residents, regardless of an entity or an individual, if earning income from any services or work conducted from Hong Kong source will be subject to withholding tax in Hong Kong.
An individual or company is determined to be non-resident if:
That individual is a foreigner who has resided or worked in Hong Kong for no more than 180 days in a tax year; or
That company is centrally managed or controlled from outside the territory of Hong Kong.
3. Which types of payments are subject to withholding tax in Hong Kong?
Not all payments to non-resident companies shall be subject to withholding tax in Hong Kong. Typically, Hong Kong imposes no tax on dividends and interest. Typical payments that would go with Hong Kong withholding tax comprise:
Royalties made non-resident individual or company
Charges paid to non-resident sportsmen or entertainers
3.1. Royalty payments
Royalty payments are paid for the right to use the intellectual property of non-residents inside and outside of Hong Kong. Withholding taxes on royal payments can vary according to whether the non-resident is related to a Hong Kong entity or not.
Examples of royalties or license fees are as the followings:
Payments for the exhibition or use in Hong Kong of cinematography or television film or tape, any sound recording, or any advertising material connected with such film, tape, or recording;
Fees for the use/usage right in Hong Kong, of any patent, design, trademark, copyright material, layout-design (topography) of an integrated circuit, performer’s right, plant variety right, secret process or formula, or other property or right of a similar nature;
Payments for imparting knowledge directly, or indirectly connected with the use in Hong Kong of any such patent, design, and above-mentioned categories.
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