The India-Hong Kong DTAA, signed 19 March 2018 and in force since 30 November 2018, sets a 5% withholding rate on dividends and a flat 10% on interest, royalties, and fees for technical services -- relevant alongside Hong Kong's own territorial tax system, which does not tax foreign-sourced income at all.
The India-Hong Kong DTAA -- signed 2018, a relatively recent treaty
The India-Hong Kong Double Taxation Avoidance Agreement was signed on 19 March 2018 and entered into
force on 30 November 2018, making it one of the more recently concluded treaties among the jurisdictions
this platform covers. It sets a 5% withholding rate on dividends, and a flat 10% on interest, royalties,
and fees for technical services -- with interest paid to the Reserve Bank of India and certain other
designated Indian government entities exempt from withholding at source. NRIs in Hong Kong relying on an
outdated understanding of the treaty (or assuming no treaty existed, since it postdates several of this
platform's other covered agreements) should confirm the current rates with a chartered accountant before
a specific transaction.
Hong Kong's own territorial tax system -- a genuine structural contrast
Hong Kong operates a territorial tax system under its Inland Revenue Ordinance: only income sourced
within Hong Kong is generally taxable there, with no separate capital gains tax and no tax at all on
genuinely foreign-sourced income, even when remitted into Hong Kong. This is a materially different
starting position from most other countries this platform covers, and NRIs in Hong Kong should not assume
Indian-source income automatically escapes Indian tax merely because Hong Kong itself would not tax
foreign-sourced income -- Indian tax law, not Hong Kong's, determines what is taxable in India.
NRI residential status and TDS on Indian-source income
Whether someone is treated as a Resident, Non-Resident, or Resident but Not Ordinarily Resident (RNOR)
under Indian tax law depends on the standard day-count tests under the Income-tax Act, applied the same
way regardless of whether the person is based in Hong Kong or any other country. Payments to a
non-resident from an Indian source -- rent, interest, or capital gains on Indian assets, for example --
are generally subject to withholding (TDS) under Section 195 of the Income-tax Act at the applicable
rate. Where the India-Hong Kong DTAA provides a lower rate for a specific income category, an NRI can
claim that relief by furnishing a Tax Residency Certificate from Hong Kong's Inland Revenue Department
along with the prescribed Form 10F, consistent with how DTAA relief works for NRIs based in any treaty
country.
Common mistakes made in this area:
- Assuming Hong Kong's own tax-free treatment of foreign income means Indian-source income also
escapes Indian tax -- it does not; Indian tax law governs Indian-source income regardless.
- Not obtaining a Tax Residency Certificate before claiming DTAA relief on Indian-source
income.
- Continuing to file as a Resident after becoming a genuine NRI, missing the lower NRI tax
treatment on foreign income.
