Proposed Refinements to Hong Kong’s FSIE Regime for Passive Income

Hong Kong proposes to revise its foreign source income exemption (“FSIE”) regime for passive income.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

In October 2021, the European Union expressed its concern over the potential double non-taxation of certain foreign passive income in Hong Kong and included Hong Kong on the EU Watchlist of non-cooperative jurisdictions for tax purposes. In response to the concern of the EU, the Hong Kong SAR Government (“HK Government”) has discussed with the Code of Conduct Group (Business Taxation) of the EU and reached a consensus on a package of proposed refinements to the FSIE regime in Hong Kong in respect of passive income.

Accordingly, the HK Government issued a consultation paper on 4 July 2022 regarding refining the FSIE regime, which will effectively tighten the offshore tax exemption for passive income in Hong Kong. After the consultation stage for the proposed refined FSIE regime, the HK Government’s plan is to introduce the amendment bill into the Legislative Council in October 2022 with a view to securing its passage by the end of 2022 and bringing it into effect from 1 January 2023. No grandfathering arrangement will be available based on the current proposed contents.

For further enquiries, please feel free to contact your usual PKF tax executives, or reach out to our Tax Manager Jeffrey Lau (jeffreylau@pkf-hk.com) or Tax Partner Henry Fung (henryfung@pkf-hk.com).