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Foreign-sourced Income Exemption

The contents of this page are based on the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 which is subject to scrutiny by the Legislative Council.  Readers are reminded to be alerted to the latest development upon enactment of the Bill. 

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Specified Foreign-sourced Income

The latest international tax standards require a taxpayer benefitting from a preferential tax treatment in a jurisdiction to have substantial economic presence in the jurisdiction, and to establish an explicit link between the relevant income and real activities in the jurisdiction. With a view to supporting international efforts in combating cross-border tax evasion and preventing double non-taxation, Hong Kong committed to amending its Foreign Source Income Exemption (FSIE) regime for passive income in accordance with the Guidance on FSIE regimes promulgated by the European Union.

The Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 (the Amendment Bill) was gazetted on 28 October 2022 and introduced into the Legislative Council on 2 November 2022 to provide a new framework for Hong Kong’s FSIE regime with a view to bringing the regime into force from 1 January 2023. The Amendment Bill aims to amend the Inland Revenue Ordinance (Cap. 112) (IRO) to regard certain foreign-sourced income as arising in or derived from Hong Kong and to provide for relief against double taxation in respect of certain foreign-sourced income.

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Covered Income

Specified foreign-sourced income means any of the following income arising in or derived from a territory outside Hong Kong:

  • interest
  • dividend
  • disposal gain from the sale of equity interests in an entity (disposal gain)
  • intellectual property (IP) income

However, it does not include any interest, dividend or disposal gain derived by a regulated financial entity from the carrying on of a business as such a regulated financial entity.

Regulated financial entity includes the following:

  • an insurer authorized under the Insurance Ordinance (Cap. 41), Lloyd’s or an approved association of underwriters;
  • an authorized institution as defined by section 2(1) of the Banking Ordinance (Cap. 155); and
  • an entity licensed under Part V of the Securities and Futures Ordinance (Cap. 571) to carry on a business in any regulated activity as defined by Part 1 of Schedule 5 to that Ordinance.

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Covered Taxpayers

Given the greater incentive of Multinational Enterprise (MNE) groups to adopt aggressive tax planning strategies and hence their higher base erosion and profit shifting risks, only members of MNE groups (MNE entity) will be subject to the new FSIE regime. The Amendment Bill provides the following definitions:

 
Term Meaning
MNE entity A person that is, or acts for, an MNE group or an entity included in an MNE group; and is not an excluded entity
Entity A legal person (other than a natural person); or an arrangement that prepares separate financial accounts, such as a partnership and a trust
MNE group A group that includes at least one entity or permanent establishment that is not located or established in the jurisdiction of the ultimate parent entity of the group
Group
  • A collection of entities that are related through ownership or control such that the assets, liabilities, income, expenses and cash flows of those entities are required under applicable accounting principles to be included in the consolidated financial statements of the ultimate parent entity of the collection; or are excluded from the consolidated financial statements of the ultimate parent entity solely on size or materiality grounds or on the grounds that the entities are held for sale; or
  • An entity that is located in one jurisdiction and has one or more permanent establishments in other jurisdictions

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Excluded Entities

An MNE entity which benefits from the existing preferential tax regimes of Hong Kong will be regarded as an excluded entity and excluded from the scope of the new FSIE regime. This is due to the fact that the substantial activities requirements of the preferential tax regimes largely overlap with the economic substance requirement of the new FSIE regime.

Note: In the light of the European Union’s latest advice, the Government will move Committee Stage Amendments to the Bill in respect of excluded entities. For details of the Committee Stage Amendments, please click here.

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Treatment of Specified Foreign-sourced Income 

Deeming provision

Under the new FSIE regime, specified foreign-sourced income will be deemed to be sourced from Hong Kong and chargeable to profits tax if:

    1. the income is received in Hong Kong by an MNE entity carrying on a trade, profession or business in Hong Kong irrespective of its revenue or asset size; and
    2. the recipient entity fails to meet the economic substance requirement (if the income is foreign-sourced interest, dividend or disposal gain), or fails to comply with the nexus requirement (if the income is foreign-sourced IP income), or fails to comply with the participation requirement (if the income is foreign-sourced dividend or disposal gain).

Year of accrual versus year of receipt

Specified foreign-sourced income will be exempt from profits tax if the economic substance requirement, participation requirement or nexus requirement (as the case may be) is satisfied in the year of assessment in which the income accrues to the MNE entity (i.e. year of accrual). If the MNE entity fails all exceptions, specified foreign-sourced income will be subject to profits tax in the year of assessment in which such income is received by the MNE entity in Hong Kong (i.e. year of receipt).

Interaction with the territorial source principle of taxation

The determination of source of profits will not be affected by the introduction of the economic substance requirement. The source of profits and the economic substance requirement will be considered in separate contexts, with the former continuing to be determined based on the prevailing requirements of the IRO and the broad guiding principle as established by judicial precedents.

Interaction with other deeming provisions in the IRO

If any specified foreign-sourced income is assessable to tax under section 15 or 15F of the IRO, the income will not fall within the scope of the new FSIE regime.

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Income Received in Hong Kong

A specified foreign-sourced income is regarded as received in Hong Kong when:

  • the income is remitted to, or is transmitted or brought into, Hong Kong;
  • the income is used to satisfy any debt incurred in respect of a trade, profession or business carried on in Hong Kong; or
  • the income is used to buy movable property, and the property is brought into Hong Kong. The income is regarded as being received at the time when the moveable property is brought into Hong Kong.

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Exceptions from the Deeming Provision

Specified foreign-sourced income received in Hong Kong will not be brought into charge if the MNE entity meets the exception requirements specifically for the particular types of incomes. The exception requirements are as follows:

 
Exceptions Specified foreign-sourced income
Interest Dividend Disposal gain IP income
Economic substance requirement
Nexus requirement
Participation requirement

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Exception 1: Economic Substance Requirement

Foreign-sourced interest, dividend or disposal gain received in Hong Kong by an MNE entity will continue to be exempt from profits tax if the economic substance requirement is met for the year of assessment in which the income accrues.

(A) Pure equity-holding entity

 
Meaning An MNE entity which only:
  • holds equity interests in other entities; and
  • earns dividends, disposal gains; and income incidental to the acquisition, holding or sale of such equity interests
Economic substance requirement The MNE entity is required to:
  • satisfy every applicable registration and filing requirement under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), the Limited Partnerships Ordinance (Cap. 37), the Business Registration Ordinance (Cap. 310); and the Companies Ordinance (Cap. 622); and
  • have adequate human resources and premises for carrying out the specified economic activities in Hong Kong
Specified economic activities Holding and managing its equity participations in other entities

(B) Non-pure equity-holding entity

 
Meaning An MNE entity that is not a pure equity-holding entity
Economic substance requirement The MNE entity is required to:
  • employ adequate number of employees with necessary qualifications to carry out the specified economic activities in Hong Kong; and
  • incur adequate amount of operating expenditure for carrying out the specified economic activities in Hong Kong
As the mode of operation varies from industry to industry, it is neither feasible nor appropriate to specify any minimum thresholds for the economic substance requirement. Each case will be considered on its own facts and circumstances. Factors that will be taken into account include:
  • the average number of employees having regard to the nature of the relevant activities, e.g. whether it is a capital or labour-intensive industry;
  • whether the employees are employed on a full-time or part-time basis;
  • whether the qualifications of the employees are related to the nature of the relevant activities;
  • the quantitative and qualitative aspects of the management and the administration of the taxpayer; and
  • whether office premises have been used for undertaking the relevant activities and whether the premises are adequate for such activities
Specified economic activities Making necessary strategic decisions in respect of any assets the entity acquires, holds or disposes of; and managing and bearing principal risks in respect of such assets

Outsourcing of specified economic activities

The economic substance requirement allows an MNE entity to outsource some or all of its specified economic activities. Outsourcing, in this context, includes outsourcing, contracting or delegating to third parties or group entities. Outsourcing of specified economic activities should in no circumstances be used to circumvent the economic substance requirement.

Outsourcing requirements

For the purpose of satisfying the economic substance requirement, outsourcing of specified economic activities by an MNE entity to an outsourced entity is permitted if the following requirements are satisfied:

  • the specified economic activities are carried out by the outsourced entity in Hong Kong;
  • the MNE entity has exercised adequate monitoring to ensure that the specified economic activities are carried out by the outsourced entity in Hong Kong;
  • the outsourced entity is generally expected to charge the MNE entity a fee for the specified economic activities performed subject to the application of transfer pricing rules;
  • the number of qualified employees employed and the amount of operating expenditure incurred by the outsourced entity in Hong Kong are commensurate with the level of specified economic activities carried out by the outsourced entity; and
  • there must be no double counting if the outsourced entity provides services to more than one MNE entity.

Where the specified economic activities are outsourced, the resources of the service provider in Hong Kong will be taken into consideration when determining whether the adequacy tests in relation to premises and human resources (for pure equity-holding entities), or qualified employees and operating expenditures (for non-pure equity-holding entities), are met.

The MNE entity remains responsible for ensuring accurate information is reported on its return, including precise details of the resources employed by its service provider.

Adequate monitoring on outsourcing

In monitoring the outsourcing of specified economic activities, an MNE entity must ensure that the outsourced entity has the capacity to perform the activities concerned in Hong Kong. Factors that will be taken into account include:

  • nature and level of specified economic activities performed by the outsourced entity for an MNE entity;
  • whether the outsourced entity has employed an adequate number of employees to perform the outsourced activities in Hong Kong;
  • whether the outsourced entity has incurred an adequate amount of operating expenditure to perform the outsourced activities in Hong Kong;
  • whether the outsourced entity has premises for carrying out the outsourced activities in Hong Kong;
  • the number of MNE entities to which the outsourced entity provides services.

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Exception 2: Nexus Requirement

As regards foreign-sourced IP income, the nexus requirement will be in place to determine the extent of such income to be exempt from profits tax. In brief, certain portion of the income derived from a qualifying intellectual property (qualifying IP income) will be exempt from profits tax, and that portion is referred to as “excepted portion”.

What is the nexus requirement

The nexus requirement means the nexus approach adopted by The Organisation for Economic Co-operation and Development (OECD) as a minimum standard under Action 5 of the package of actions to tackle base erosion and profit shifting (BEPS) promulgated in 2015 (the BEPS Action 5 Report). It has been applied by the OECD Forum on Harmful Tax Practices to evaluate the harmfulness of preferential tax regimes for IP income put in place by tax jurisdictions. All member jurisdictions of the Inclusive Framework on BEPS with IP regimes have either adopted the nexus approach or abolished their non-compliant regimes.

Under the nexus approach, only income from a qualifying IP asset can qualify for preferential tax treatment based on a nexus ratio which is defined as the qualifying expenditures as a proportion of the overall expenditures that have been incurred by a taxpayer to develop an IP asset. The proportion of research and development (R&D) expenditures is a proxy for substantial economic activities. This seeks to ensure that there is a direct nexus between the income receiving benefits and the expenditures contributing to that income.

Under the new FSIE regime, the provisions relating to the nexus requirement should be read in the way that best secures consistency with the requirements and guidance in Chapter 4 of the BEPS Action 5 Report.

What is qualifying IP income

Qualifying IP income means income derived from qualifying intellectual property in respect of:

  1. the exhibition or use of, or a right to exhibit or use (whether in or outside Hong Kong) the property; or
  2. the imparting of, or undertaking to impart, knowledge directly or indirectly connected with the use (whether in or outside Hong Kong) of the property.

What is qualifying intellectual property

“Qualifying intellectual property” means:

  • a patent granted under the Patents Ordinance (Cap. 514);
  • a patent application made under Cap. 514;
  • a copyright subsisting in software under the Copyright Ordinance (Cap. 528); or
  • any of the above intellectual properties granted, made or subsisted under the law of any place outside Hong Kong.

What is the R&D fraction

The definition of “R&D fraction” in the Amendment Bill is modelled on the nexus ratio referred to in the BEPS Action 5 Report. The R&D fraction is calculated in accordance with the following formula and capped at 100%–

F = QE × 130%

QE + NE
where F means the R&D fraction;
QE means the qualifying R&D expenditure incurred in respect of the qualifying intellectual property to which the qualifying IP income relates; and
NE means the non-qualifying expenditure incurred in respect of the same qualifying intellectual property.

The R&D fraction is used to calculate the excepted portion of qualifying IP income received by an MNE entity, which is ascertained in accordance with the following formula:

P = I × F
where P means the excepted portion;
I means the qualifying IP income; and
F means the R&D fraction applicable to the qualifying IP income.

What is R&D expenditure for the purpose of ascertaining the R&D fraction

For the purpose of ascertaining the R&D fraction in respect of a qualifying intellectual property to which the income relates, R&D expenditures (including capital expenditure) are classified as follows:

R&D expenditures QE* NE*
For an R&D activity carried out 
  • by the MNE entity
  • by a non-associated person
  • by an associated person that is a Hong Kong resident person
         - in Hong Kong
         - outside Hong Kong
  • by an associated person that is a non-Hong Kong resident person
* QE does not include interest payments; payments for any land or buildings, or for any alteration, addition or extension to any building and acquisition of intellectual property. NE does not include interest payments and payments for any land or buildings, or for any alteration, addition or extension to any building.

Transitional arrangement

As a transitional measure, an MNE entity is allowed to apply a ratio where qualifying expenditures and overall expenditures are calculated based on a 3-year rolling average. The purpose is to allow sufficient time for taxpayers to adapt to the tracking and tracing requirements while still complying with the general principles of the nexus approach. After the transitional period of 3 years, the MNE entity would need transition from using the 3-year average to the R&D fraction.

Where a qualifying IP income accrues to an MNE entity during the period from 1 January 2023 to the last day of its basis period of the year of assessment 2024/25 and that MNE entity has insufficient records to track and trace the R&D expenditures to calculate the R&D fraction, it may make use of the transitional measure.

Readers may refer to the example of a transitional measure for tracking and tracing provided in Annex A of the BEPS Action 5 Report.

Loss sustained in respect of foreign-sourced qualifying IP income

Where an MNE entity receives a qualifying IP income chargeable to profits tax in a year of assessment and sustains a loss in respect of the qualifying intellectual property to which the income relates, the qualifying portion of the loss (i.e. the portion of the loss that is not attributable to the excepted portion of the qualifying IP income) may be set off against the assessable profits of the MNE entity for that year of assessment. Any that portion of loss not so set off may be carried forward and set off, in accordance with section 19C of the IRO, against the assessable profits of the MNE entity in subsequent years of assessment.

Effect of withdrawal, abandonment and refusal of patent application

Where the excepted portion of a qualifying IP income derived from a patent application made under Cap. 514 or under the law of any place outside Hong Kong is not chargeable to profits tax in a year of assessment due to the operation of the nexus requirement and the patent application is withdrawn, abandoned or refused in a subsequent year of assessment, the excepted portion of the income would be regarded as specified foreign-sourced income received in Hong Kong in that subsequent year of assessment and be chargeable to profits tax.

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Exception 3: Participation Requirement

The participation requirement provides an alternative to the economic substance requirement to facilitate an MNE entity which receives foreign-sourced dividend or disposal gain in Hong Kong to claim tax exemption.

Conditions for the participation requirement

  • the MNE entity is a Hong Kong resident person, or where it is a non-Hong Kong resident person, it has a permanent establishment in Hong Kong to which the foreign-sourced dividend or disposal gain is attributable; and
  • the MNE entity has continuously held not less than 5% of equity interests in the investee entity concerned for a period of not less than 12 months immediately before the foreign-sourced dividend or disposal gain accrues.

Certain anti-abuse rules are in place to disallow the participation exemption. These rules are as follows:

Switch-over rule (Subject to tax condition)

  • If the specified foreign-sourced income is a disposal gain, the participation exemption only applies if the disposal gain is subject to a qualifying similar tax in a territory outside Hong Kong (foreign jurisdiction).
  • If the specified foreign-sourced income is dividend, the participation exemption only applies if any of the following sums is subject to a qualifying similar tax in a foreign jurisdiction:
    1. the dividend; or
    2. the underlying profits out of which the dividend is paid
  • A sum is subject to a qualifying similar tax in a foreign jurisdiction if: 
    1. the sum is subject to a tax that is of substantially the same nature as profits tax in the foreign jurisdiction (foreign tax); and
    2. the tax rate applicable to the sum (applicable rate) is at least 15%.
  • The applicable rate refers to the corporate tax rate of the foreign jurisdiction at which the foreign tax applies to the sum as business income. If the foreign tax is chargeable at the time the sum accrues, the applicable rate will be the corporate tax rate of the foreign jurisdiction applicable at that time. If the foreign tax is chargeable for the taxable period in which the sum accrues, the applicable rate will be the corporate tax rate of the foreign jurisdiction applicable for that taxable period. 
  • The applicable rate may not necessarily be the headline rate of the foreign jurisdiction. If a specified foreign-sourced income is subject to a preferential tax rate in the foreign jurisdiction, the applicable rate will be the preferential tax rate applied to that income.  If a specified foreign-sourced income is subject to the foreign tax at more than one rate (e.g. progressive corporate tax rates), the applicable rate will be the highest corporate tax rate applied to that income. 
  • The following examples illustrate how the subject to tax condition applies: 

 

 
Situation Is the income subject to a qualifying similar tax in Jurisdiction A?
A foreign-sourced dividend is charged to corporate income tax in Jurisdiction A at the headline rate of 20%. Yes, because the income is actually charged to a tax similar to profits tax in Jurisdiction A and the applicable rate is above 15%.
A foreign-sourced dividend is exempt from tax in Jurisdiction A.  The headline corporate tax rate of Jurisdiction A is 20%. No, because no tax is charged on the income in Jurisdiction A.   
A foreign-sourced disposal gain is charged to corporate income tax in Jurisdiction A at 10% under a preferential tax regime of Jurisdiction A.  The headline corporate tax rate of Jurisdiction A is 20%. No, because the applicable rate (i.e. the tax rate provided under the preferential tax regime) in Jurisdiction A is below 15%.
A foreign-sourced disposal gain of HK$5 million is charged to corporate income tax in Jurisdiction A under a progressive rates regime.  Under the regime, income of the first HK$2 miliion is taxed at 10% whilst the remainder is taxed at 20%. Yes, because the highest corporate income tax rate applicable to the income is above 15%.

 

  • If an MNE entity satisfies the participation requirement but fails on the subject to tax condition in respect of a foreign-sourced dividend or disposal gain received in Hong Kong, the tax relief available in relation to the income concerned will be switched over from full exemption to tax credit. In other words, the MNE entity will remain subject to profits tax in respect of the income concerned but with a deduction from the profits tax of foreign tax paid on the income concerned and underlying profits / income.

Anti-hybrid mismatch rule

  • Where the specified foreign-sourced income is a dividend, and tax is charged on the underlying profits of the dividend in a territory outside Hong Kong, the participation exemption will not apply to the extent that the dividend is allowable for deduction when computing the amount of tax of the investee entity.

Main purpose rule

  • If the Commissioner is of the opinion that the main purpose, or one of the main purposes, of entering into an arrangement is to obtain a tax benefit in relation to a liability to pay profits tax, the participation exemption will not apply.
  • An arrangement or a series of arrangements will be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect the economic reality.
  • The reference to “one of the main purposes” means that obtaining a tax benefit does not need to be the sole or dominant purpose of a particular arrangement. An arrangement may have more than one main purpose and it is sufficient that at least one of which was to obtain the tax benefit, even if that was not the dominant purpose. All relevant facts and circumstances have to be considered, including:
    • the manner in which the arrangement was structured;
    • the terms of the arrangement;
    • the ways of implementing the arrangement;
    • the result which the arrangement intended to achieve or had achieved;
    • the non-tax purposes of the arrangement and any alternative way that the non-tax purposes could be achieved;
    • the form (i.e. contractual rights and obligations created) and substance (i.e. practical or commercial end result) of the arrangement;
    • the functions, assets and risks of each entity in the arrangement; and
    • the contractual rights and obligations normally created, and the commercial and financial relationships normally entered into, between independent persons under an arrangement of the kind in question.

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Loss Sustained from Sale of Equity Interests

A loss sustained by an MNE entity from a sale in a territory outside Hong Kong of its equity interests in another entity may be set off against its assessable profits for the year of assessment in which the proceeds of the sale are received in Hong Kong. However, this rule is subject to the condition that had a gain been derived from the sale and received in Hong Kong, the gain would have been chargeable to profits tax under the new FSIE regime.

Any amount of the loss not so set off may be carried forward and set off, in accordance with section 19C of the IRO, against the assessable profits of the MNE entity in subsequent years of assessment.

The loss may only be set off to the extent that the assessable profits concerned are derived from specified foreign-sourced income that is chargeable to profits tax under the new FSIE regime.

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Calculation of Assessable Profits Derived from Specified Foreign-sourced Income

If a specified foreign-sourced income is chargeable to tax in the year of assessment in which the income is received in Hong Kong, outgoings or expenses incurred in the production of the income, to the extent that they have not been deducted for any year of assessment, may be deducted as if they were incurred in the year of receipt.

Any allowance or balancing charge relating to the production of a specified foreign-sourced income will also be taken into account when calculating the assessable profits of an MNE entity for the year of assessment in which the income is received in Hong Kong.

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Double Taxation Relief

If an MNE entity has specified foreign-sourced income chargeable to profits tax and has paid tax in a territory outside Hong Kong which is of substantially the same nature as profits tax (similar tax), double taxation relief will be available regardless of whether that territory has entered into a comprehensive avoidance of double taxation arrangement (CDTA) with Hong Kong or not. The amount of tax credit is capped at the lower of foreign tax paid and the profits tax that would have been payable on the same income.

Tax credit under CDTAs

For any similar tax payable on specified foreign-sourced income in a territory outside Hong Kong with which CDTA has been made (CDTA territory), bilateral tax credit pursuant to the relevant CDTA will be granted to the MNE entity if it is a Hong Kong resident person.

To align the treatment on foreign tax paid in a CDTA territory and a non-CDTA territory, similar tax payable in respect of the underlying profits out of which a foreign-sourced dividend was paid in a CDTA territory but is not allowable as bilateral tax credit under the CDTA may be allowed as a unilateral tax credit against profits tax charged on the foreign-sourced dividend.

Unilateral tax credit

For any similar tax payable on specified foreign-sourced income in a non-CDTA territory, unilateral tax credit will be provided to the MNE entity if it is a Hong Kong resident person. Any tax credit allowed will be set off against the profits tax payable in respect of the specified foreign-sourced income concerned. In other words, unilateral tax credit will be provided when the income is received in Hong Kong. Also, no tax credit will be available if the specified foreign-sourced income is exempt from profits tax under the new FSIE regime or if the tax paid in a non-CDTA territory relates to income other than specified foreign-sourced income.

Where the specified foreign-sourced income is a dividend, tax credits will be allowed in respect of not only the foreign tax paid on the dividend, but also the foreign tax paid on the investee entity’s underlying profits out of which the dividend is paid, provided that the MNE entity has held at least 10% equity interests in the investee entity when the dividend is distributed.

Deduction as expenses

Where the MNE entity is not a Hong Kong resident person, the foreign tax paid on the specified foreign-sourced income which is chargeable to profits tax in Hong Kong may be allowed as deduction under section 16(1)(ca) of the IRO.

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Taxpayers’ Obligations

An MNE entity should:

  • report its specified foreign-sourced income in the profits tax return and designated form for the year of assessment in which the income accrues;
  • report the amount of chargeable specified foreign-sourced income in the profits tax return and designated form for the year of assessment in which the income is received in Hong Kong;
  • notify the Commissioner in writing that it is chargeable to profits tax within 4 months after the end of the basis period of the year of assessment during which the income is received in Hong Kong in case no profits tax return has been issued to it for the year of assessment concerned;
  • notify the Commissioner in writing of the withdrawal, abandonment or refusal of a patent application made under Cap. 514 or under the law of any place outside Hong Kong, for which an excepted portion of qualifying IP income was regarded as not chargeable to profits tax in a previous year of assessment, within 4 months after the end of the basis period of the year of assessment in which the withdrawal, abandonment or refusal takes place; and
  • retain records of transactions, acts, or operations relating to the specified foreign-sourced income at least until the later of the expiry of 7 years after the completion of those transactions, acts or operations; or the expiry of 7 years after the income is received, or to be regarded as received, in Hong Kong.

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Commissioner’s Opinion on Compliance with the Economic Substance Requirement

To help prepare for the introduction of the new FSIE regime and to provide tax certainty, a transitional measure has been put in place after the gazettal of the Amendment Bill. An MNE entity affected by the new regime may apply for the Commissioner’s Opinion on compliance with the economic substance requirement. After enactment of the Amendment Bill, MNE entities are encouraged to obtain an advance ruling on their compliance with the economic substance requirement.

For more details on the Commissioner’s Opinion, please click here.

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More Information on Specified Foreign-sourced Income

Inland Revenue Ordinance
  •  
The Amendment Bill
  •  
Frequently Asked Questions

 

Click here to read the frequently asked questions and answers about the new FSIE regime.
  •  
Illustrative Examples

 

Click here to read the illustrative examples for the new FSIE regime.
OECD materials
  •  
Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance – Action 5: 2015 Final Report
EU materials
  •  
Guidance on foreign source income exemption regimes
  •  
Guidance on the Interpretation of the Third Criterion of the Code of Conduct for Business Taxation

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Enquiries 

If you have any question regarding the new FSIE regime, you may contact us at (852) 2594 1600 or taxpf@ird.gov.hk.