24 Aug
Updates on the proposed refinements to foreign source income exemption regime for passive income in Hong Kong

To comply with the guidance on foreign source income exemption (FSIE) regime issued by the European Union (EU), the Government has introduced the new taxation laws on FSIE effective from January 1, 2023 (please refer to our newsletter dated November 18, 2022). In addition, the Government also having considered the views of stakeholders and the guidance of EU on the new laws, has made certain proposed refinements:


Covered assets

A non-exhaustive list of assets would need to be incorporated. Approach to include disposal gains of all kinds of assets should be adopted, regardless of whether the assets are financial or nonfinancial in nature.


Exemption or relief proposed by the Government:

1) Disposal gains of traders

  • foreign-sourced disposal gains related to assets derived by an MNE entity who is a trader of such assets are to be carved out from the refined FSIE regime.
  • a trader refers to a person who sells, or offers to sell, property in its ordinary course of trade.

2) Intra-group transfer relief

  • subject to certain anti-abuse measures, taxation of foreign-sourced disposal gains from transfer of assets between associated companies is to be deferred. The effect of such deferral is that the transfer is deemed to take place for a consideration which gives rise to neither a gain nor a loss for the transferor company, whilst the transferee company is deemed to have acquired the asset at the same cost and on the same date as the transferor company.
  • one of the companies concerned must be the beneficial owner of 75% or more of the issued share capital of the other company concerned; or a third company must be the beneficial owner of not less than 75% or more of the issued share capital of each company concerned.
  • the IRD will consider accepting other means of fulfilling the 75% threshold for association in addition to by means of issued share capital. But the relief will be revoked if two conditions below are not met:
    • both the transferor and the transferee are within the charge to Hong Kong profits tax for six years after the transfer; and
    • the transferor and the transferee remain associated for two years after the transfer

The amendment bill will be introduced into the Legislative Council in October 2023 and the refinements to FSIE shall be implemented from January 2024.  

For more information, please contact Ms. Amie Cheung at