Hong Kong Tax News Flash

Apr 2023, Issue 5

Proposal to refine Hong Kong’s FSIE regime for foreign-sourced disposal gains unveiled

As reported in our earlier news flash, the foreign-sourced income exemption (FSIE) regime will be refined to include disposal gain on other types of assets (in addition to equity interests) to align with the latest requirements of the European Union (EU).

On 6 April 2023, the Financial Services and Treasury Bureau (FSTB) issued the consultation paper Refinements to Hong Kong’s Foreign-sourced Income Exemption Regime for Foreign-sourced Disposal Gains (Consultation Paper). The Consultation Paper sets out the proposed refinements to the FSIE regime initially formulated by the Government based on its discussion with the EU thus far. To assist the Government to further negotiate with the EU and finalise the legislative proposal, the FSTB has invited stakeholders and interested parties to comment on the proposed refinements by 6 June 2023.

In a nutshell, the Government proposes the adoption of a definite and exhaustive list of covered assets for the purpose of defining disposal gains. Multinational enterprise (MNE) entities that receive foreign-sourced disposal gains from covered assets in Hong Kong can continue to treat such gains as non-taxable if the economic substance requirement (ESR) or nexus requirement, as the case may be, is met. Relief measures such as the exclusion of disposal gains for traders and intra-group transfer relief will be explored, while other aspects of the existing FSIE regime will remain unchanged.

In this news flash, we summarise the proposed refinements and our observations.