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The Hong Kong SAR Government recently launched a consultation on a proposal to refine Hong Kong’s foreign source income exemption (FSIE) regime for passive income in response to the European Union’s concern over potential double non taxation arising from tax exemption for offshore passive income in Hong Kong. The consultation ends on 15 July  2022.

Under the proposed refined FSIE regime, four types of offshore passive income – interest; income from intellectual properties (IP); dividends, and disposal gains in relation to shares or equity interest (hereafter ‘disposal gains’) (collectively, ‘in-scope offshore passive income’) – would be deemed sourced from Hong Kong and chargeable to profits tax under certain circumstances. The proposed refined FSIE regime is expected to become effective on 1 January 2023, with no grandfathering arrangement.