Do I have to withhold tax when paying royalties to a non-resident from Hong Kong?
Yes, if the royalty is for the use of IP in Hong Kong. The non-resident is chargeable to profits tax on 30% of the royalty and the Hong Kong payer must deduct the tax when paying. That gives an effective rate of about 4.95% for a corporation at 16.5%, or 100% of the payment is taxed if paid to certain associates.
Hong Kong has no general withholding tax, but a specific rule for royalties and similar sums.
Which payments. Sums paid for the use or right to use in Hong Kong of patents, designs, trade marks, copyright material, secret processes or similar rights are deemed to arise from a Hong Kong business, even if the recipient is a non-resident with no Hong Kong presence (section 15). Payments for use outside Hong Kong can also be taxable if the payer deducts them in computing its own Hong Kong profits.
How much. Under section 21A the assessable profit is deemed to be 30% of the gross sum. At the corporate rate of 16.5% this works out at an effective rate of 4.95% (30% x 16.5%); at the 15% unincorporated rate it is 4.5%. If the non-resident qualifies for the two-tiered rates (no connected entity, or none that has elected), the effective rate on the first HK$2 million can be lower; the payer checks this with the non-resident and declares it in the return.
Exception. If the IP was previously owned by someone carrying on business in Hong Kong and the payment goes to an associate, 100% of the sum is taxed.
Payer's duties
- The non-resident is assessed in the payer's name; the payer must deduct enough tax at the time it pays or credits the sum.
- Complete the non-resident's profits tax return (Form BIR54) accordingly.
- Check whether a double taxation agreement reduces the tax, and whether the deduction is allowed in your accounts.
Legal basis
- Inland Revenue Ordinance (Cap. 112), s.15
- Inland Revenue Ordinance (Cap. 112), s.21A
Sources
Applies to YA 2025/26 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
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- What stamp duty applies to buying property or signing a lease in Hong Kong?For property instruments signed on or after 26 February 2026, ad valorem duty runs from a flat HK$100 up to HK$4 million to 4.25% for values between about HK$21.7 million and HK$100 million. Above HK$100 million, residential property is charged more (6.5% beyond about HK$109.6 million); non-residential stays at 4.25%. Leases pay 0.25% to 1% of rent depending on term.
- Does a Hong Kong company pay tax on profits earned overseas?Generally no. Profits sourced outside Hong Kong are outside the profits tax charge, even if the company is incorporated here. The exceptions are certain foreign-sourced passive income received in Hong Kong by members of multinational groups under the FSIE regime, and any profits the IRD finds are actually sourced in Hong Kong.
- Does Hong Kong have VAT, GST or sales tax?No. Hong Kong has no value-added tax, goods and services tax or sales tax. The only taxes on income are profits tax, salaries tax and property tax, plus duties such as stamp duty. The government also confirms there is no capital gains tax and no withholding tax on dividends or interest.
- What is the profits tax rate for a Hong Kong company?Under the two-tiered system, a corporation pays 8.25% on its first HK$2 million of assessable profits and 16.5% on the rest. The lower rate is available to only one entity in a group of connected entities. This applies from year of assessment 2018/19 onwards.