Dividend from a Hong Kong company
Hong Kong Level: Dividends Are Generally Not Taxable in Hong Kong
Hong Kong’s tax system follows the territorial source principle and does not impose a dividend withholding tax.
- Dividend Income: Regardless of whether the shareholder is a Hong Kong resident or a non-resident (foreign person), dividends received from a Hong Kong company are generally not subject to Hong Kong individual income tax or salaries tax.
Therefore, at the dividend payment stage, the Hong Kong company is not required to withhold any tax on behalf of the shareholder.
Chinese Mainland Level: Tax Liability Depends on Your “Tax Resident” Status
(For individual person whom working or living inside China mainland)
The “tax residence” status is the key factor in determining whether you need to pay tax in Mainland China on this Hong Kong dividend.
1. If you have no domicile in China and your residence period is short
According to regulations, for an individual without a domicile in China, and their cumulative residence within a tax year does not exceed 183 days, income sourced outside China is exempt from individual income tax. Dividends paid by a Hong Kong company are considered foreign-sourced income and typically fall outside this taxable scope.
2. If your cumulative residence in a tax year reaches 183 days
At this point, you would be classified as a resident individual without a domicile in China, and in theory, you would be required to pay tax on your worldwide income. However, an important “Six-Year Rule” exemption applies:
- Continuous residence for less than six years: If your cumulative residence in China reaches 183 days but the number of consecutive years in which you have met this threshold is less than six, then your income derived from sources outside China and paid by an overseas entity or individual is exempt from individual income tax. Dividends from a Hong Kong company fall into this category.
- The “absence exceeding 30 days” exception: When calculating this “consecutive six years,” if in any one of those years you have a single absence from China exceeding 30 consecutive days, the consecutive-year count will reset to zero, and you can still enjoy the aforementioned foreign-sourced income exemption.
- Continuous residence for six full years: If you have reached the 183-day threshold for six consecutive years (starting from 2019), the foreign-sourced income exemption will no longer apply. At that point, regardless of who pays the Hong Kong dividend, you will need to declare and pay individual income tax in Mainland China.
Summary and Action Recommendations
Your individual income tax liability can be simplified into the following scenarios:
| Scenario | China Tax Liability |
|---|---|
| Residence < 90 days | Hong Kong dividends are generally not subject to tax in the China Mainland. |
| Residence ≥ 183 days, but less than 6 consecutive years (or with an absence exceeding 30 days) | Dividends paid by a Hong Kong company are treated as foreign-sourced income and are generally exempt from Mainland individual income tax. |
| Residence ≥ 183 days for 6 consecutive years | Hong Kong dividends must be declared and taxed in the Mainland, potentially at 20%. |
Given the complexity of determining tax residency status, especially concerning the “Six-Year Rule” and the application of tax treaties, it is recommended that you:
- Keep proper records of your entry and exit dates to accurately calculate your days of residence.
- Consult a professional cross-border tax advisor (e.g. Colvass Tax Consulting Ltd) regarding your specific residence situation and shareholding structure to obtain accurate advice for your individual circumstances.
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