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FAQ > Business Tax in Hong Kong > B15

Q: A company has made some royalty payments to an offshore company which does not carry on any business in Hong Kong. Is the royalty income of the offshore company chargeable to profits tax? View : 66
A:

Even if the offshore company does not carry on any business in Hong Kong, the royalties it received are nevertheless chargeable to profits tax if they are:

(a) payments received from the exhibition or use in Hong Kong of cinematograph or television film or tape, any sound recording, or any advertising materials connected with such film, tape, or recording; or

(b) payments received for the use of or right to use in Hong Kong any patent, design, trademark, copyright material or secret process or formula or other property of a similar nature, or for imparting or undertaking to impart knowledge connected with the use in Hong Kong of any such patent, design, etc; or

(c) payments received for the use of or right to use outside Hong Kong any patent, design, trademark, copyright material or secret process or formula or other property of a similar nature, or for imparting or undertaking to impart knowledge connected with the use outside Hong Kong of any such patent, design, etc, which are deductible in ascertaining the assessable profits of a person under Profits Tax (not applicable to sums received or accrued before 25 June 2004).

In the above situation, the assessable profits are taken to be 30% of the payments (or 10%, if the payments were received by or accrued to the offshore company before 1 April 2003) but may be taken to be 100% of the payments if the offshore company is your company's associate. The tax payable is then computed by applying the appropriate tax rate to the assessable profits so arrived at. Furthermore, the offshore company is chargeable in your company's name and your company is required under the IRO to withhold from the payments made to the offshore company sufficient money for the payment of the tax.

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