The India-Hong Kong comprehensive tax treaty was signed on 19 March 2018, entered into force on 30 November 2018 and applies in India from the financial year starting 1 April 2019. Read with India as the source state and Hong Kong as the residence state, it caps Indian tax at 5% on dividends (the beneficial owner must be a Hong Kong resident) and 10% on interest, royalties and fees for technical services, taxes business profits in India only through a permanent establishment, and taxes gains on Indian shares in India. A principal purpose test sits in the income articles, so a Hong Kong company that is merely a conduit may lose the benefit. Confirm the current treaty text before relying on any clause.
← Back to the complete guide: How to Set Up a Subsidiary in India from Hong Kong
Key facts
| Signed / in force | 19 March 2018 / 30 November 2018; applies in India from 1 April 2019 |
|---|---|
| Dividends (Article 10) | 5% of the gross amount; beneficial owner must be a Hong Kong resident |
| Interest (Article 11) | 10%; 0% for the government, the RBI and designated bodies such as the Hong Kong Monetary Authority |
| Royalties (Article 12) | 10% |
| Fees for technical services (Article 13) | 10% |
| Permanent establishment (Article 5) | Building site or installation over 6 months; service PE over 183 days in any 12-month period; dependent agent |
| Capital gains (Article 14) | Gains on shares of an Indian company taxable in India; property-rich companies taxed where the property lies |
| Anti-abuse | Principal purpose test in the dividend, interest, royalty, technical fees and gains articles, and a general rule in Article 28 |
| Disputes | Mutual agreement procedure: three years from first notification (Article 25) |
Tax rates table
| Article | Income | Treaty rate on payments from India to Hong Kong | Notes |
|---|---|---|---|
| Article 10 | Dividends | 5% of the gross amount | Beneficial owner must be a Hong Kong resident; no minimum shareholding is stated in the summaries; principal purpose test applies |
| Article 11 | Interest | 10% of the gross amount | 0% for the Indian or Hong Kong government, the RBI and designated bodies such as the HKMA |
| Article 12 | Royalties | 10% of the gross amount | Beneficial owner and no PE connection required |
| Article 13 | Fees for technical services | 10% of the gross amount | A separate article from royalties |
| Article 7 | Business profits | Taxed in India only to the extent attributable to a PE | Net basis for PE income |
| Article 14 | Capital gains | Shares of an Indian company: taxable in India | Domestic law sets the rate; 12.5% for unlisted shares held more than 24 months |
| Article 8 | Shipping and air transport | Source country may tax at 50% of its normal rate, as reported | Check the article for the exact scope |
| Article 15 | Salary of a Hong Kong resident | Standard day-count test; confirm the period and conditions in the treaty text | See the employees guide |
Permanent establishment (Article 5)
- Fixed place: a place of management, branch, office, factory or workshop creates a PE.
- Building site or installation project: a PE if it lasts more than six months.
- Service PE: furnishing services through employees or other personnel in India for more than 183 days within any 12-month period creates a PE, with connected projects aggregated.
- Dependent agent: an agent who habitually concludes contracts, keeps stock for regular delivery or habitually secures orders for the enterprise can create a PE.
- Subsidiary: an Indian subsidiary is not a PE of the parent by itself, but can become one if it acts as a dependent agent or is the parent's fixed place.
- Hub models: Hong Kong trading and sourcing companies that send staff to India should watch the 183-day test and agent rules. See transfer pricing.
Share gains
Summaries of the treaty place share gains in Article 14 and say that gains on shares of an Indian company are taxable in India. Hong Kong does not tax capital gains generally, so the Indian tax is the main cost on an exit. Domestic law taxes a non-resident's long-term gain on unlisted Indian shares at 12.5% (held more than 24 months), and a short-term gain at the normal rate. See exit and restructuring.
Anti-abuse: the principal purpose test
- The dividend, interest, royalty, technical services and capital gains articles contain a principal purpose test. A benefit is denied if obtaining it was one of the principal purposes of the arrangement and granting it would be contrary to the treaty's object and purpose.
- A Hong Kong company needs commercial reasons and real substance: board decisions, people, premises and spend in Hong Kong. A letterbox holding company is exposed.
- India's General Anti-Avoidance Rule can apply where the arrangement's main purpose is a tax benefit above INR 3 crore.
- Summaries of the treaty say the Multilateral Instrument does not modify it. Have your adviser confirm.
- The 5% dividend rate is the main attraction. Press Note 3 approval, not the treaty, is the gating issue for most Hong Kong investors. See Press Note 3 and Hong Kong entities.
How to claim treaty rates
- The Hong Kong company obtains a Tax Residency Certificate from the Inland Revenue Department.
- It gives the Indian payer Form 41 (previously Form 10F), the certificate and a self-declaration of beneficial ownership and no PE in India.
- The Indian payer deducts Withholding Tax at the treaty rate under Section 393 of the Income-tax Act, 2025, and deposits it by the 7th of the following month.
- The payer issues the certificate, which the Hong Kong company keeps for its Hong Kong return and any credit claim.
The Hong Kong side
- Hong Kong taxes profits arising in or derived from Hong Kong. Indian-source dividends received by a Hong Kong company may be exempt if they are not Hong Kong-sourced, but the foreign-sourced income exemption regime for multinational groups can deem certain foreign dividends, interest, gains and IP income to be received in Hong Kong unless economic substance or participation conditions are met. This is for your Hong Kong adviser.
- Summaries note that the foreign tax credit under the treaty is limited to the Hong Kong profits tax payable on the same income.
- Hong Kong does not levy withholding tax on dividends and interest paid to non-residents; royalties are subject to a withholding tax at an effective rate of 4.95% in the summaries.
Disputes and information exchange
The mutual agreement procedure allows a case to be presented within three years of the first notification of the action that gives rise to taxation not in line with the treaty. The treaty also provides for exchange of information. Keep the transfer pricing files of both jurisdictions aligned.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Inland Revenue Department (Hong Kong), Companies Registry (Hong Kong) and the Ministry of External Affairs (India).
Frequently asked questions
Is there a tax treaty between India and Hong Kong?
Yes. It was signed on 19 March 2018, entered into force on 30 November 2018 and applies in India from 1 April 2019.
What is the Indian withholding rate on dividends paid to a Hong Kong parent?
5% of the gross amount under the treaty, if the beneficial owner is a Hong Kong resident and the paperwork is in place. The domestic rate is higher.
What are the treaty rates on interest, royalties and technical fees?
10% of the gross amount for each, with 0% on interest paid to the government, the RBI and designated bodies such as the HKMA.
When does a Hong Kong company have a permanent establishment in India?
Through a fixed place, a building site or installation over six months, services through personnel for more than 183 days in any 12-month period, or a dependent agent.
Are gains on Indian shares taxable in India for a Hong Kong seller?
Yes. Summaries of the treaty say gains on shares of an Indian company are taxable in India, and Hong Kong does not tax capital gains in general.
What is the principal purpose test?
A rule that denies a treaty benefit if obtaining it was one of the principal purposes of an arrangement and granting it would be contrary to the treaty's object and purpose.
Does the treaty remove the need for Press Note 3 approval?
No. The treaty deals with tax. Press Note 3 is a separate foreign investment approval rule.
What documents prove treaty eligibility?
A Tax Residency Certificate from the Hong Kong Inland Revenue Department, Form 41, and a declaration of beneficial ownership and no PE.
How long do I have to bring a mutual agreement case?
Three years from the first notification of the action that gives rise to the taxation, under Article 25.
Related guides
Press Note 3 for Hong Kong Companies: Approval for Hong Kong-Registered Investors and What the 2026 Easing Does Not Change
How India's Press Note 3 applies to a Hong Kong parent: the March 2026 government statement that Hong Kong-registered firms still need prior approval, the 10% passive-ownership easing for other investors, the approval route, and planning for regional headquarters.
Read the guide →Getting Money Out of India to a Hong Kong Parent: Dividends at 5%, Service Fees, Royalties, Interest and Loan Repayments
How a Hong Kong parent receives money from an Indian subsidiary: 5% treaty withholding on dividends, 10% on interest, royalties and fees, Section 393, Forms 41, 145 and 146, Hong Kong tax treatment and the documents banks ask for.
Read the guide →Hong Kong Employees in India: Salary Tax, the MPF Position and EPF for International Workers
What a Hong Kong employer must plan for staff in India: Indian salary tax and the treaty day-count test, Hong Kong salaries tax, MPF, EPF for international workers because there is no social security agreement, and secondment contracts.
Read the guide →Hong Kong as a Regional Headquarters for India: Holding Company, Trading Hub, Treasury and the Principal Purpose Test
How groups use a Hong Kong company as a regional holding, trading or treasury hub for India, the substance Indian and Hong Kong tax authorities expect, the treaty principal purpose test, Press Note 3 limits and alternatives.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and Hong Kong rules change often; confirm current requirements before acting.