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Hong Kong - Japan Double Taxation Agreement(withholding tax rate of dividend, royalty)

Updated: Mar 30, 2022

 Is there withholding tax when a Japanese company pays dividends, interest, or royalties to a Hong Kong company? What is the withholding tax rate? And conversely, what about payments made by a Hong Kong company? Japan and Hong Kong have a double tax agreement, so check domestic law and the double tax agreement.

The following table shows the withholding tax rates set out in the Japan-Hong Kong Double Tax Agreement, Hong Kong Tax Law, and Japanese Tax Law.

In Hong Kong, withholding tax is only payable on royalty payments. In Japan, on the other hand, the withholding tax rate is 20.42%.

You will apply the more favorable rate from domestic law or the DTA rate.

(Note 1) The withholding tax rate is 5% if the beneficial dividend owner owns, directly or indirectly, 10% or more of the corporation's voting shares paying the dividend for more than six months; otherwise, the withholding tax rate is 10%.

(Note 2) The withholding tax rate would be 16.5% when all or part of the intangible assets which generate royalties were previously owned in Hong Kong.

(Note 3) Withholding tax rate for unlisted shares.

(Note 4) Withholding tax rate for interest on loans.

1. When a Japanese company pays a Hong Kong company

The rate under the double tax agreement is more favorable than domestic law. When a Japanese corporation pays dividends, royalties, or interest to a Hong Kong corporation, the withholding tax rate is 20.42% under Japanese domestic law. The rate is as shown in the table after applying the double tax agreement.

To apply a double tax agreement, the beneficiary Hong Kong corporation must submit a 'Notification of Tax Treaty' to the tax office's director of the jurisdiction where the Japanese payer corporation is by the day before the dividend or other payment date.

(Note 5) Assumes that the Hong Kong corporation owns, directly or indirectly, at least 10% of the voting shares of the Japanese corporation for a period of at least six months.

2. When a Hong Kong company pays a Japanese company

According to Hong Kong tax law, there is no withholding tax when a Hong Kong corporation pays dividends or interest to a Japanese corporation. A withholding tax of 4.95% is usually deducted on royalty payments. The rate under Hong Kong tax law is lower than the rate of the double tax agreement, so you like to use the rate under Hong Kong tax law.

(Note 6) If all or part of the intangible assets from which royalties are derived were previously owned in Hong Kong, the withholding tax rate would be 16.5% under Hong Kong tax law, in which case the withholding tax rate would be 5% as a result of the application of the DTA.

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