Withholding Tax in Hong Kong
There is no withholding tax on dividend distributions and interest payments from a Hong Kong entity.
On the other hand, specific types of payments are subject to withholding tax in Hong Kong. They are royalties paid to non-residents and fees paid to non-resident entertainers or sportsmen for their performances in Hong Kong. Next, I will provide further details about royalties paid to non-residents.
According to the Inland Revenue Ordinance, royalty payments made to a non-resident for the use of, or the right to use, intellectual property in Hong Kong, or where the royalty payments are deductible in ascertaining assessable profits for the payer, are deemed to be taxable in Hong Kong.
Royalty Payments to Non-Residents
Royalty payments include payments which are received from:
1. Use or exhibition of film, sound recording, tape recording or their connected advertising material
2. Use or the right to use of patent, design, trademark, copyright material, layout design of an integrated circuit, performer’s right, plant variety right or secret process or formula
Regarding to the withholding tax calculation, the normal amount deemed taxable is 30% of the gross amount of the royalties paid, resulting an effective tax rate of 4.95% (4.5% for a non-corporate person).
However, if a royalty is paid to an affiliated non-resident and the intellectual property was owned by a person carrying on business in Hong Kong, 100% of the royalty is deemed to be taxable, resulting in an effective tax rate of 16.5% (15% for a non-corporate person).
The following entities are considered “associates” if they are corporation:
1. A person who controls the corporation, or a partner of the controller, or a relative of the controller or partner
2. A director or principal officer of the corporation (or any associated corporation), or a relative of the director or officer
3. A director or principal officer of a controlled corporation
Finally, the payer of royalties to a non-resident is required to withhold the appropriate tax according to the above regulations.
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