Latest Changes to Hong Kong’s Foreign-Sourced Income Exemption Regime: Do You Have to Pay Tax on Offshore Asset Disposal Gains?

Dear Friends,

Do you currently operate in Hong Kong?

Is your Hong Kong company part of a multinational enterprise (MNE) group?

As you may already know, the reformed foreign-sourced income exemption (FSIE) regime came into force at the start of 2023. Under the legislative changes from last year, if you were a member of an MNE group, you had to pay Hong Kong profits tax on the following types of foreign-sourced income:

?? Interest

?? Dividends

?? Disposal gains from the sale of equity interests

?? Income from intellectual property

But did you know that there has been a further amendment to the FSIE regime?

The Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Ordinance 2023 took effect on 1 January 2024.

The scope of covered income now includes gains from selling all kinds of assets, including immoveable and moveable property. This means that not only foreign-sourced disposal gains from the sale of equity interests will be subject to profits tax in Hong Kong, but also foreign-sourced disposal gains from the sale of other forms of property.

Immoveable property refers to land, buildings, and other structures permanently attached to the land. These can include commercial buildings, warehouses, factories, and any other fixed structures that cannot be easily moved or relocated.

Moveable property, on the other hand, refers to assets that don’t fit the description of immoveable property. These can include vehicles, machinery, equipment, furniture, and antiques.

You may, however, be eligible for exemption from profits tax or tax relief if you fulfil certain criteria.

Find out whether any of the exception conditions apply to your Hong Kong company.

Our team of seasoned tax professionals is here to support you and help you unpack the implications of these changes for your tax position. Contact us to find out more.