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Hong Kong’s SAR’s Government on October 28 gazetted the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income ) Bill 2022. The Bill introduced significant refinements to Hong Kong’s foreign source income exemption (FSIE) regime for four types of offshore income: interest, dividends, disposal gains from the sale of equity interests, and income from intellectual property (IP) (collectively, ‘specified foreign-sourced income’). The Bill is expected to become effective January 1, 2023. 

The Inland Revenue Department (IRD) also published on a dedicated webpage , administrative guidance on the refined FSIE regime, including frequently asked questions, illustrative examples, and procedures for applying for a Commissioner’s Opinion on the compliance with the proposed economic substance requirement.

Action Item: Given that the draft tax legislation contained in the Bill remains subject to final agreement by the European Union and scrutiny in the Legislative Council (LegCo), multinational enterprise (MNE) entities currently in Hong Kong and those exploring business opportunities in Hong Kong should monitor the latest developments of the refined FSIE regime, and prepare before the refined FSIE regime comes into operation effective January 1, 2023. The refined FSIE regime presents unprecedented and significant changes to Hong Kong’s tax system, and complex rules may apply depending on the circumstances of each case.