Spotlight On Hong Kong’s Foreign-Sourced Income Exemption Regime
Insight from our Asia-Pacific team
In October 2021, the European Union placed Hong Kong on a watchlist on the grounds that the non-taxation of foreign-sourced passive income is not accompanied by adequate substance requirements and robust anti-abuse rules.
Hong Kong then publicly committed to rectifying the situation before end-2022 and has now gazetted the Inland Revenue (Amendment) (Taxation on Specified Foreign-Sourced Income) Bill 2022 on 28 October 2022.
The bill creates a new foreign-sourced income exemption (FSIE) regime that will allow tax exemptions for specified foreign-sourced passive income, i.e. interest, dividends, gains from the sale of shares or equity interests in an entity (disposal gains) and intellectual property (IP) income, received in Hong Kong by relevant multinational enterprise (MNE) entities, provided that certain conditions are met.
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