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Amendments to Hong Kong’s Foreign-sourced Income Exemption Regime under Consultation

Amendments to Hong Kong’s Foreign-sourced Income Exemption Regime under Consultation

In June 2022, the Hong Kong SAR (HKSAR) government released a consultation paper proposing amendments to the foreign-sourced income exemption (FSIE) regime for passive income to address European Union’s (EU) concerns of non-taxation of passive income, where the income recipient has no substantial economic activity, highlighted on October 2021. HKSAR commits to amend its tax laws by 31 December 2022 and to be applicable as of 1 January 2023.

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Under the new proposed new FSIE regime, offshore passive income, including interests, income from Intellectual Properties (IP), dividends and gains from the disposal of shares or equity interests, would be deemed sourced from the HKSAR and deemed taxable if:

• the income received in the HKSAR by a constituent entity of a multi-national enterprise (MNEs)
• the receiving entity fails to meet the economic substance requirement for non-IP passive income or fails to comply with the nexus approach for IP passive income

In-scope offshore passive income would continue to be exempt from tax if certain conditions are met.

 

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