A Hong Kong parent can take money out of its Indian subsidiary as dividends, service fees, royalties, interest, loan repayments, buybacks or sale proceeds. The treaty caps Indian withholding at 5% on dividends and 10% on interest, royalties and fees for technical services when the paperwork is in place, against a domestic rate of about 20% plus surcharge and cess on dividends to non-residents. Payments to related parties are scrutinised, so keep contracts, evidence of service and arm's length support. Hong Kong generally does not tax Indian-sourced dividends, but the foreign-sourced income exemption rules can apply to multinational group members.
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Key facts
| Dividends | 5% treaty rate with Hong Kong beneficial owner; paid from distributable profits after audit and shareholder approval |
|---|---|
| Service fees | Fees for technical services at 10% under the treaty if the services are managerial, technical or consultancy; otherwise business profits depend on a PE; GST reverse charge applies |
| Royalties | 10%; licence agreement and valuation required |
| Interest | 10%; ECB limits; interest limitation rule |
| Loan principal | No tax on principal; follows the ECB schedule |
| Paperwork | Hong Kong tax residency certificate, Form 41, no-PE declaration, Form 145 (previously 15CA), Form 146 (previously 15CB) where needed |
| Scrutiny | Related-party payments draw questions from banks and tax authorities; keep evidence |
| Hong Kong side | Territorial taxation; FSIE rules may apply to foreign-sourced income received in Hong Kong by group members |
The routes compared
| Route | Indian tax on the outflow | Hong Kong result | Watch for |
|---|---|---|---|
| Dividends | 5% under the treaty, against about 20% plus surcharge and cess domestically | Generally not taxed as Hong Kong-sourced, subject to FSIE | Distributable profits; Form 41 before payment; principal purpose test |
| Service fees | 10% if fees for technical services; nil if business profits without a PE | May be taxable if services are performed in Hong Kong; confirm | Evidence of service, arm's length price, GST reverse charge |
| Royalties | 10% | Taxable in Hong Kong according to source and use of the IP; confirm with a Hong Kong adviser | Licence agreement, valuation, transfer pricing |
| Interest | 10%; limits on cost and amount | Taxable if it arises in Hong Kong; foreign-sourced interest is subject to FSIE | ECB ceiling; interest limitation rule |
| Loan principal | None on principal | Not income | Maturity and registration |
| Buy-back or sale proceeds | Capital gain tax; buy-back taxed as dividend in some cases | Capital gains generally not taxed; FSIE for disposal gains by group members | Tax on gains in India; see exit guide |
Paying a dividend
- Prepare audited accounts and confirm distributable profits under the Companies Act.
- The board recommends and shareholders approve the dividend; no interim dividend without distributable profit.
- Collect from the Hong Kong parent: tax residency certificate, Form 41, beneficial ownership and no-PE declaration.
- Deduct Withholding Tax at the treaty rate under Section 393 of the Income-tax Act, 2025, and deposit it by the 7th of the following month.
- Remit through the authorised dealer bank with Form 145 (and Form 146 if the bank requires a chartered accountant's certificate).
Service fees, royalties and recharges
- Payments for management, technical or consultancy services are fees for technical services at 10% under the treaty if the paperwork is in place, plus GST on reverse charge.
- A recharge of salaries for seconded staff is a service fee; apply Withholding Tax and transfer pricing. See Hong Kong employees in India.
- Pay only for services actually received, and keep the contract, invoices and evidence of benefit. Indian tax officers disallow unsupported management fees.
- A royalty needs a written licence agreement, a clear scope and arm's length pricing. See transfer pricing.
Remittance paperwork
| Document | When | Purpose |
|---|---|---|
| Tax Residency Certificate and Form 41 | Before the first payment each year | Claim treaty rate |
| Beneficial ownership and no-PE declaration | Before payment | Support treaty claim and principal purpose test |
| Form 145 (previously 15CA) | Each foreign remittance | Online declaration to the tax department |
| Form 146 (previously 15CB) | Where required for the remittance | Chartered accountant's certificate |
| Withholding Tax return and certificate | Quarterly return; certificate to the payee | Hong Kong credit and records |
Hong Kong side
Indian dividends are generally not Hong Kong-sourced. Group members that receive foreign dividends in Hong Kong should check the FSIE conditions. Your Hong Kong adviser should confirm. ₹10 lakh is about HK$83,000 at an indicative ₹12.07 per Hong Kong dollar (15 October 2026 interbank rate; check the live rate before remitting).
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
What is the withholding tax on dividends paid from India to a Hong Kong parent?
5% of the gross amount under the treaty if the Hong Kong company is the beneficial owner and the paperwork is in place. The domestic rate on dividends to non-residents is about 20% plus surcharge and cess.
Which forms do I need to send money to Hong Kong?
Form 145 for the remittance, and Form 146 where a chartered accountant's certificate is needed, along with Form 41 and the tax residency certificate for treaty rates.
Can I pay a management fee to Hong Kong?
Yes if it is for real services at an arm's length price, with Withholding Tax at 10% where treated as fees for technical services under the treaty and GST on reverse charge.
Can the subsidiary pay dividends from capital?
No. Dividends must come from distributable profits as the Companies Act requires.
Can I repay a loan to Hong Kong?
Yes, following the registered ECB schedule through the bank. Principal is not taxed, but interest is subject to Withholding Tax.
Are Indian dividends taxed in Hong Kong?
Generally not as Hong Kong-sourced, but the foreign-sourced income exemption rules can apply to multinational group members that lack economic substance.
What if the Hong Kong company is only a conduit?
The principal purpose test and the general anti-avoidance rule can deny treaty relief. Build commercial substance in Hong Kong.
Related guides
India-Hong Kong Double Taxation Agreement Explained: 5% Dividends, 10% Royalties and Fees, PE Rules and the Principal Purpose Test
The India-Hong Kong tax treaty explained for a Hong Kong parent: 5% dividend rate, 10% interest, royalties and fees for technical services, permanent establishment rules, share gains, anti-abuse tests and how to claim treaty rates.
Read the guide →Transfer Pricing between India and Hong Kong: Arm's Length Pricing, Hub and Re-Invoicing Models, Documentation and Safe Harbours
Transfer pricing for a Hong Kong group with an Indian subsidiary: arm's length rules, Form 3CEB, master file and local file, Hong Kong trading and re-invoicing hubs, services and management fees, advance pricing agreements and safe harbours.
Read the guide →Funding Your Indian Subsidiary from Hong Kong: Equity, Preference Shares, External Borrowing and FEMA Reporting
How a Hong Kong parent can fund an Indian company: equity share and preference share pricing, 60-day allotment and FC-GPR rules, ECB, loans, FLA return, Press Note 3 and reporting through the authorised dealer bank.
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.