PASSAGE OF TAXATION BILL WELCOMED

The Government welcomed the Legislative Council’s passage of a bill today that strengthens Hong Kong’s tax regime for better combatting cross-border tax avoidance arising from double non-taxation.

The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 introduces a new foreign-sourced income exemption (FSIE) regime for passive income in Hong Kong.

The bill, which takes effect on January 1, 2023, fulfils Hong Kong's commitment to the European Union in 2021 to amending its tax law.

Secretary for Financial Services & the Treasury Christopher Hui said the new FSIE regime not only upholds the territorial source principle of taxation, but also maintains Hong Kong’s tax competitiveness.

Under the regime, multinational enterprise entities which have a substantial economic presence in Hong Kong will continue to be able to claim tax exemption for specified foreign-sourced passive income.

Such income involves interest, dividends and disposal gains in relation to shares or equity interests, received in Hong Kong.

Foreign-sourced intellectual property income from qualifying intellectual property received in the city will also be exempt to the extent that the nexus requirement is complied with.

Individuals and local companies will not be affected.

The FSIE regime will put in place an economic substance requirement and nexus requirement to safeguard against possible exploitation of Hong Kong’s tax arrangement by shell companies.

The Inland Revenue Department has set up a dedicated team to provide technical support to taxpayers concerned. It will also implement a package of measures to help them comply with the new regime.

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