BILL ON FOREIGN GAINS TAX PASSED

29-11-2023

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The Government welcomed the passage of the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023 by the Legislative Council today that refines Hong Kong's foreign-sourced income exemption regime (FSIE).

The refinement to the FSIE regime expands the scope of assets in relation to foreign-sourced disposal gains to cover assets other than shares or equity interests, it added.

Secretary for Financial Services & the Treasury Christopher Hui said that with the bill’s passage, the city's FSIE regime will be brought in line with the latest requirement of the Guidance on Foreign Source Income Exemption Regimes updated by the European Union in December 2022.

The tax regime is further strengthened to counter cross-border tax avoidance and prevent double non-taxation, he noted.

Under the refined FSIE regime, foreign-sourced non-intellectual property (IP) disposal gains will continue to be exempt from tax if the multinational enterprise 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 & Development.

While the scope of assets in relation to foreign-sourced disposal gains is expanded, exemption and relief have been put in place to minimise the compliance burden of the affected multinational enterprise entities, thereby maintaining the tax competitiveness of Hong Kong, Mr Hui said.

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 regime.

This covers the availability of double taxation relief and treatment of disposal loss as well as business facilitating measures to reduce compliance burden, enhance tax certainty and ensure tax transparency. Click here for details of the Foreign-sourced Income Exemption.

The refined foreign-sourced income exemption regime will be implemented from January 1, 2024. The Government will request the EU to remove Hong Kong from its watchlist on tax co-operation as soon as possible.




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