Under the Hong Kong territorial tax system, persons or companies carrying out any trade, profession or business in Hong Kong are taxable on all profits arising in or derived from Hong Kong from such trade, profession or business. Consequently, income which does not have a Hong Kong source is not subject to profits tax.
The source of income and questions as to whether a business is carried out in Hong Kong and profits are derived from Hong Kong are largely questions of fact.
At present, the profits tax rates for companies and persons other than companies are 8.25% up to HK$2 million of taxable profits and 16.5 percent thereafter, and 15 percent, respectively. In addition, dividends received are not taxable in Hong Kong.
Furthermore, interest income derived from deposits placed in Hong Kong and qualifying debt instruments may, under certain specific conditions, be exempted from profits tax.
Apart from the below case, no withholding tax is imposed in Hong Kong (e.g. on dividend distributions or interest payments.
The sole exception is that royalty payments to persons not carrying out business in Hong Kong are subjected to a 4.95 percent withholding tax. As an anti-avoidance provision, a 16.5 percent withholding tax applies if the recipient of the royalty payments is a company associated with a Hong Kong taxpayer and the intellectual property rights were previously owned by a Hong Kong taxpayer.