Hong Kong’s FSIE regime, which takes effect from 1 January 2023, will be further refined with the changes expected to be effective from 1 January 2024. MNE entities in Hong Kong should keep a close eye on the on-going development of the FSIE regime and assess the potential tax impact on a timely manner. Stay tuned with us for the latest updates and our insight.
Legislative bill on further refinements to the FSIE regime published
On 13 October 2023, the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023 (Bill) was gazetted. The Bill seeks to refine the existing FSIE regime by expanding the scope of assets in relation to foreign-sourced disposal gains to cover assets other than equity interests. To mitigate the impacts of the refinements on covered taxpayers, the Bill also proposes to introduce an exclusion of disposal gains derived by traders of assets other than intellectual property (IP) and an intra-group transfer relief. The Bill will be introduced into the Legislative Council on 18 October 2023 and it is proposed that the refinements will apply to disposal gains accrued and received by covered taxpayers on or after 1 January 2024. Covered taxpayers may apply for a Commissioner’s Opinion or expanding the scope of the Opinion previously granted on their compliance with the economic substance requirement with respect to non-IP disposal gains in relation to assets other than equity interests.
16 October 2023
Updates on proposed refinements to the FSIE regime for foreign-sourced disposal gains
In late July, the Inland Revenue Department organised engagement sessions with stakeholders providing updates on the changes to the proposed refinements to the FSIE regime for foreign-sourced disposal gains in response to the comments received during the consultation exercise and based on the latest round of negotiation with the European Union. The updates include scope of covered assets, determination of the source of disposal gains, computation of disposal gains or losses, exemption and relief measures, etc.
1 August 2023
Proposal to refine Hong Kong’s FSIE regime for foreign-sourced disposal gains unveiled
To align with the European Union's latest requirements, the Hong Kong SAR government issued a consultation paper on 6 April 2023 proposing to include disposal gains on other types of assets (in addition to equity interests) under the FSIE regime. Foreign-sourced disposal gains from covered assets received by MNEs in Hong Kong will remain non-taxable if the relevant exception provision is met. Additional relief measures will be explored while other aspects of the existing FSIE regime will remain unchanged.
11 April 2023
Hong Kong’s FSIE regime will be fine-tuned in response to EU’s latest guidance on foreign-sourced capital gains
On 14 February 2023, the European Union (EU) released an updated list regarding international tax co-operation. Given the updated guidance on FSIE regimes promulgated by the EU in December 2022, Hong Kong is kept on the EU watchlist and needs to fine-tune its tax legislation on foreign-sourced capital gains by the end of 2023. The Hong Kong SAR government reassures that this will not result in any adverse impact on Hong Kong enterprises.
20 February 2023
Bill on refined FSIE regime passed
The bill on the refined FSIE regime, along with certain Committee Stage Amendments, was passed on 14 December 2022 and will take effect from 1 January 2023. Other key developments include the Hong Kong SAR Government’s responses to written submissions on the bill and the European Union’s agreement on the ‘headline rate’ approach for the purpose of the ‘subject to tax’ condition.
23 December 2022
The bill on refined FSIE regime is gazetted
The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (Bill) is gazetted on 28 October 2022 and will be introduced into the Legislative Council on 2 November 2022. The overall framework of the refined FSIE regime under the Bill remains largely the same as that in the consultation paper. On the same date, the Inland Revenue Department also published on a dedicated webpage of its website, an administrative guidance on the refined FSIE regime which includes frequently asked questions, illustrative examples and procedures for applying for a Commissioner’s Opinion on the compliance with the proposed economic substance requirement.
28 October 2022
Commissioner’s Opinion as an interim measure to obtain certainty on economic substance requirements under refined FSIE regime
The Inland Revenue Department will introduce a new mechanism as an interim measure for taxpayers to obtain an opinion from the Commissioner of Inland Revenue as to whether they meet the economic substance requirements under the refined foreign source income exemption regime expected to be effective on 1 January 2023. The new mechanism serves as an interim measure to provide greater tax certainty to taxpayers during the period between the gazettal of the amendment bill on the refined FSIE regime and the coming into operation of the relevant amendment ordinance.
17 October 2022
Proposed refinements to foreign source income exemption regime: Hong Kong as an effective investment holding platform
With the Hong Kong SAR government’s continuous effort to address questions and concerns expressed by different businesses, it appears that Hong Kong’s advantage as an effective place for setting up investment holding companies should not be significantly undermined by the proposed refinements to foreign source income exemption regime for passive income.
15 September 2022
Proposed refinements to Hong Kong’s foreign source income exemption regime for passive income
The Hong Kong SAR government proposed to refine Hong Kong’s foreign source income exemption (FSIE) regime for passive income with effect from 1 January 2023. Four types of offshore passive income, namely (1) interest, (2) income from intellectual properties, (3) dividends and (4) disposal gains in relation to shares or equity interest, will be deemed to be sourced from Hong Kong and chargeable to profits tax under certain circumstances.
27 June 2022
South China (incl. Hong Kong SAR) Tax Leader, PwC China
Tel: +[86] (755) 8261 8899