Think Hong Kong has no withholding tax? Not exactly. While many types of income are exempt, there are specific situations where you are legally required to withhold tax for the Inland Revenue Department (IRD). Here is your guide.

When we talk about “Withholding Tax” (WHT) in Hong Kong, business owners often assume it doesn’t apply to them because Hong Kong is a low-tax jurisdiction. However, if you are paying non-residents for specific services, trademarks, or even managing final payrolls, you may have a legal obligation to act as a “tax collector” for the IRD.

When Does Hong Kong Law Require Withholding?

Withholding tax generally refers to income tax paid to the government by the payer of the income instead of the recipient of the income. As implied by its name, the tax is withheld or deducted from the payment made to the recipient.

While Hong Kong does not charge WHT on dividends or interest paid to non-residents, the IRD does require WHT in the following five scenarios:

1. Royalties and License Fees

If you pay a non-Hong Kong resident for the right to use an intellectual property (like a patent, trademark, or software copyright) in Hong Kong, you are typically required to withhold tax.

The Rate:

(a) Royalties gained from a Hong Kong associate:

Non-resident individuals: 15% ; Non-resident corporations: 8.25% – 16.5%

(b) Royalties that are not derived from a Hong Kong associate

Non-resident individuals: 4.5% ; Non-resident corporations: 2.475% – 4.95%

2. Payments to Performers and Athletes

If you hire a non-Hong Kong resident entertainer or sportsman to perform in Hong Kong, the payments made to them (or their agents) are subject to WHT.

The Rate:

Generally 10% or 11%, depending on whether the procurement is done through an individual or an incorporated agent.

3. Assignment of Performer’s Rights

If you pay a non-resident for the rights to a performance that took place in Hong Kong, this is treated differently than a standard royalty.

The Rate:

Based on actual assessable profits or a percentage agreed upon specifically with the IRD.

4. Employees Leaving Hong Kong (“The Exit Tax”)

This is the most common WHT situation for small businesses. If an employee who is not a permanent resident is leaving Hong Kong for good, the employer must withhold their final salary payment.

You must hold the entire final payment until you receive a “Letter of Release” from the IRD. This ensures all tax liabilities are settled before the employee leaves the jurisdiction.

What are the Tax Reporting and Filing Obligations?

Based on withholding the above-mentioned tax out of the payments made to a non-resident, a Hong Kong payer is required to perform certain tax filing and reporting obligations with the IRD as follows.

Type of payment	Tax return / form / letter to be filed	Deadline
Royalty / license fee	A notification letter informing the chargeability of Profits Tax Return – In Respect of Non-Resident Persons	Not later than 4 months after the end of the basis period for that year of assessment
Salary to a departing employee	Employer Return IR56G	At least 1 month before the expected departure date of an employee.
Remuneration paid to non-Hong Kong entertainer or sportsman	Form IR623	Immediately after the entertainer’s or sportsman’s arrival in Hong Kong

Can the Withholding Tax Be Reduced?

The final tax payable by the non-resident may potentially be reduced in certain circumstances. Examples include:

(1) Hong Kong has entered into a double tax treaty (“DTA”) with the other jurisdiction which the royalty / license fee recipient is a tax resident, and such DTA provides a lower withholding tax rate for royalty / license fee.

(2) The non-resident is entitled to Hong Kong’s two-tiered profits tax rates regime under which the first HKD 2 million of assessable profits is subject to one-half of normal tax rate only.

(3) The actual amount of assessable profits of the non-resident can be ascertained and agreed by the IRD which results into a lower effective tax rate.

However, the reduction of a non-resident’s tax liability requires the filing of tax return and/or additional information, or further negotiation with the IRD. As the final outcome is uncertain, the statutory amount or the amount prescribed by the IRD should still be withheld at the time of making payments to a non-resident.

Why Does This Matter to Your Business?

If you are the “Payer” in any of these scenarios, you are legally responsible for withholding the correct amount. If you fail to do so, the IRD may hold your company liable for the tax that should have been collected. These rules are not just “paperwork” — they are statutory requirements that can trigger audits if ignored.

For example, an employer who fails to file the Employer’s Return IR56G and/or withhold the final salary payment for his / her employee who is about to leave Hong Kong for good may also be liable to penalty and/or prosecution.

FAQ: Common Withholding Tax Questions

1: Do I need to withhold tax on dividends or interest I pay?

No. Generally, Hong Kong does not impose withholding tax on dividends or interest paid by a Hong Kong company to a non-resident.

2: Is “Withholding Tax” the same as “Corporate Tax”?

No. Corporate tax is on your own company’s profits. Withholding tax is an obligation to collect tax on behalf of the IRD when you send payments to others.

3: What happens if I don’t withhold the money?

You could be held personally or corporately liable for the tax, plus potential penalties and interest from the IRD for failure to comply with reporting and withholding requirements.

How HKWJ Tax Law can help

Compliance is the foundation of a successful business in Hong Kong. Whether you are dealing with cross-border licensing, managing international talent, or handling employee departures, our team ensures you stay ahead of your IRD obligations.

At HKWJ Tax Law, we provide:

Compliance Audits: Reviewing your current payment structures to ensure you are meeting WHT requirements.

Tax Advisory: Navigating the technicalities of royalty payments and performer contracts.

IRD Liaison: Handling the necessary filings and letters of release so you don’t have to deal with the bureaucracy.

Don’t wait for an IRD enquiry to check your tax compliance. Reach out to us via the form below for more information.