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Hong Kong Profits Tax – Withholding Tax

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Hong Kong Profits Tax – Withholding Tax

As previously discussed in our article regarding Hong Kong Non-residents, a non-resident who carries on a trade, profession or business in Hong Kong is chargeable to Profits Tax under section 14 of the Inland Revenue Ordinance (“IRO”) in respect of profits arising in or derived from Hong Kong from such trade, profession or business. This applies to both residents and non-residents of Hong Kong.

Further, the terms of section 20A of the IRO provide that a non-resident person may be assessed directly or in the name of his agent in respect of his profits arising in or derived from Hong Kong from any trade, profession or business carried on in Hong Kong. The section further provides that the tax so charged shall be recoverable from the assets of the non-resident or his agent.

The following payments are subject to withholding tax in Hong Kong:

•
Royalties and license fees made to non-residents

•
Payments received for the performance in Hong Kong of non-resident entertainers or sportsmen

Withholding Tax on Royalty and License Fees
Royalties and license fees subject to withholding tax include:

•
Payments for the exhibition or use in Hong Kong of cinematography or television film or tape, sound recording or their connected advertising materials [section 15(1)(a)].

•
Payments for the use, or the right to the use, in Hong Kong of any patent, design, trade mark, copyright material, *layout-design (topography) of an integrated circuit, *performer’s right, *plant variety right, secret process or formula [section 15(1)(b)].

•
Payments for the use, or the right to the use, outside Hong Kong when such sums are deductible in ascertaining the Hong Kong persons’ assessable profits, of any patent, design, trade mark, copyright material, *layout-design (topography) of an integrated circuit, *performer’s right, *plant variety right, secret process or formula [section 15(1)(ba)].

•
* Payments for an assignment of, or agreement to assign, a performer’s right in relation to a performance given by the performer in Hong Kong [section 15(1)(bb)].

(* only applicable for sums paid or accrued on or after 29 June 2018)

The withholding tax rates vary depending on whether the non-resident is an “associate” of the Hong Kong entity or not. Please see below table:

	Derived from an associate		Not derived from an associate
	Not eligible for two-tiered rates	Eligible for two-tiered rates	Not eligible for two-tiered rates	Eligible for two-tiered rates
Non-resident corporation	16.5%	8.25% (assessable profits up to HK$2,000,000) and 16.5% (assessable profits in excess of HK$$2,000,000)	4.95%	2.475% (assessable profits up to HK$$2,000,000) and 4.95% (assessable profits in excess of HK$$2,000,000)
Non-resident unincorporated business	15%	7.5% (assessable profits up to HK$$2,000,000) and 15% (assessable profits in excess of HK$$2,000,000)	4.5%	2.25% (assessable profits up to HK$$2,000,000) and 4.5% (assessable profits in excess of HK$$2,000,000)

According to the IRO, the following are considered as “associate” of a Hong Kong entity:

If the Hong Kong entity is a nature person:

i.
a relative of the person;

ii.
a partner of the person and any relative of that partner;

iii.
a partnership in which the person is a partner;

iv.
any corporation controlled by the person, by a partner of the person or by a partnership in which the person is a partner;

v.
any director or principal officer of any such corporation as is referred to in subparagraph (iv).

If the Hong Kong entity is a corporation:

i.
any associated corporation, i.e.:-

•

•

•
a corporation over which the person has control;

a corporation which has control over such a person, being a corporation; or

a corporation which is under the control of the same person, being a corporation.

ii.
any person who controls the corporation and any partner of such person, and, where either such person is a natural person, any relative of such person;

iii.
any director or principal officer of that corporation or of any associated corporation and any relative of any such director or officer;

iv.
any partner of the corporation and, where such partner is a natural person, any relative of such partner.

If the Hong Kong entity is a partnership:

i.
any partner of the partnership and where such partner is a partnership any partner of that partnership, any partner with the partnership in any other partnership and where such partner is a partnership any partner of that partnership and where any partner of, or with, or in any of the partnerships mentioned in this subparagraph is a natural person, any relative of such partner;

ii.
any corporation controlled by the partnership or by any partner thereof or, where such a partner is a natural person, any relative of such partner;

iii.
any corporation of which any partner is a director or principal officer;

iv.
any director or principal officer of a corporation referred to in subparagraph 2 (2nd bullet).

Withholding Tax on Payments to Non-resident Entertainers or Sportsman
Sums received from performances in Hong Kong given by a non-resident entertainer or sportsman on or in connection with a commercial occasion or event are subject to withholding tax. Such performance includes:

•
any appearance of the entertainer or sportsman by way of or in connection with the promotion of any such occasion or event; and

•
any participation by the entertainer or sportsman in or for sound recording, films, videos, radio, television or other similar transmissions (whether live or recorded).

The withholding tax rates vary depending on whether the promoter or sponsor in Hong Kong made an agreement directly with the non-resident or with the agent. Please see below table:

Withholding tax rate

Year of assessment 2014/15 onwards

If the performance is procured directly with the entertainer / sportsman

10%

If the performance is procured through a non-resident agent who is:

(a) an individual person or a partnership,
(b) a corporate agent or a corporation.

10%
11%

Source：Hong Kong Inland Revenue Department’s website

- https://www.ird.gov.hk/eng/pdf/dipn17.pdf
- https://www.ird.gov.hk/eng/pdf/dipn22.pdf
- https://www.ird.gov.hk/eng/pdf/pam48e.pdf

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Hong Kong Profits Tax – Withholding Tax

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•	Royalties and license fees made to non-residents
•	Payments received for the performance in Hong Kong of non-resident entertainers or sportsmen

•	Payments for the exhibition or use in Hong Kong of cinematography or television film or tape, sound recording or their connected advertising materials [section 15(1)(a)].
•	Payments for the use, or the right to the use, in Hong Kong of any patent, design, trade mark, copyright material, layout-design (topography) of an integrated circuit, performer’s right, *plant variety right, secret process or formula [section 15(1)(b)].
•	Payments for the use, or the right to the use, outside Hong Kong when such sums are deductible in ascertaining the Hong Kong persons’ assessable profits, of any patent, design, trade mark, copyright material, layout-design (topography) of an integrated circuit, performer’s right, *plant variety right, secret process or formula [section 15(1)(ba)].
•	* Payments for an assignment of, or agreement to assign, a performer’s right in relation to a performance given by the performer in Hong Kong [section 15(1)(bb)]. (* only applicable for sums paid or accrued on or after 29 June 2018)

i.	a relative of the person;
ii.	a partner of the person and any relative of that partner;
iii.	a partnership in which the person is a partner;
iv.	any corporation controlled by the person, by a partner of the person or by a partnership in which the person is a partner;
v.	any director or principal officer of any such corporation as is referred to in subparagraph (iv).

i.	any associated corporation, i.e.:-
	• • •	a corporation over which the person has control; a corporation which has control over such a person, being a corporation; or a corporation which is under the control of the same person, being a corporation.
ii.	any person who controls the corporation and any partner of such person, and, where either such person is a natural person, any relative of such person;
iii.	any director or principal officer of that corporation or of any associated corporation and any relative of any such director or officer;
iv.	any partner of the corporation and, where such partner is a natural person, any relative of such partner.

i.	any partner of the partnership and where such partner is a partnership any partner of that partnership, any partner with the partnership in any other partnership and where such partner is a partnership any partner of that partnership and where any partner of, or with, or in any of the partnerships mentioned in this subparagraph is a natural person, any relative of such partner;
ii.	any corporation controlled by the partnership or by any partner thereof or, where such a partner is a natural person, any relative of such partner;
iii.	any corporation of which any partner is a director or principal officer;
iv.	any director or principal officer of a corporation referred to in subparagraph 2 (2nd bullet).

•	any appearance of the entertainer or sportsman by way of or in connection with the promotion of any such occasion or event; and
•	any participation by the entertainer or sportsman in or for sound recording, films, videos, radio, television or other similar transmissions (whether live or recorded).