Hong Kong passes bill for amending the foreign-sourced income exemption regime

On 29 November 2023, the Legislative Council of Hong Kong announced the passage of the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023.

The Bill refines Hong Kong’s foreign-sourced income exemption (FSIE) regime by expanding the scope of assets in relation to foreign-sourced disposal gains to cover assets other than shares or equity interests.

Under the refined FSIE regime, foreign-sourced non-intellectual property (IP) disposal gains will continue to be exempt from tax if the multinational enterprise (MNE) entity has adequate economic substance in Hong Kong. For foreign-sourced IP disposal gains, the extent of the tax exemption will be determined by the nexus approach promulgated by the Organisation for Economic Co-operation and Development. While the scope of assets in relation to foreign-sourced disposal gains is expanded, exemption and relief have been put in place to minimize the compliance burden of the affected MNE entities. This will maintain the tax competitiveness of Hong Kong.”

To provide the necessary continuity and tax certainty for taxpayers, other parts of the existing compliance framework of Hong Kong’s FSIE regime will continue to apply to the refined FSIE regime. This covers the availability of double taxation relief and treatment of disposal loss and business facilitating measures to reduce compliance burden, enhance tax certainty, and ensure tax transparency.

The refined FSIE regime with go into effect from 1 January 2024.

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