Hong Kong: Consultation document on proposed changes to foreign-sourced income exemption regime

The consultation period runs through 6 June 2023.

The consultation period runs through 6 June 2023.

The government on 6 April 2023 released a consultation document on the proposed changes to the foreign sourced-income exemption (FSIE) regime to include foreign-sourced gains from disposal of assets other than shares and equity interests.

The consultation period runs through 6 June 2023.


In response to the EU's initial inclusion in October 2021 of Hong Kong in Annex II of its list of non-cooperative jurisdictions (the so-called “grey list”), and to comply with the EU’s guidance on FSIE regimes originally published in 2019, Hong Kong implemented the revised FSIE regime for dividends, interest, equity disposal gains and intellectual property (IP) income since 1 January 2023. Read TaxNewsFlash

The EU in December 2022 updated its guidance on FSIE regimes to explicitly require such regimes to cover gains from disposal of all types of assets. The government thus announced further legislative amendments to its existing FSIE regime by the end of 2023 to cover foreign-sourced gains from disposal of assets other than shares and equity interests, effective 1 January 2024. Read TaxNewsFlash

Specific issues on which input is sought

The proposed changes are subject to negotiations with the EU, and issues the government plans to raise with the EU, and specifically requests stakeholder input on, include:

  • Means of reducing the retroactive effect of the proposed changes on businesses
  • Exemption or relief specific to disposal gains, such as foreign-sourced disposal gains derived by traders or from transfers of assets between associated companies 

Clarification of certain issues

The consultation document also clarifies the following issues:

  • Foreign-sourced disposal gains related to non-IP assets will continue to be exempt from tax if the economic substance (ES) requirement is met.
  • The nexus approach will be adopted in determining the extent to which foreign-sourced disposal gains related to IP assets are to be exempted.
  • Foreign-sourced disposal losses can only be used to set off against specified foreign-sourced income under the FSIE regime.
  • Taxpayers can apply for a Commissioner’s opinion in respect of their compliance with the ES requirement for the foreign-sourced gains from disposal of the proposed added assets before the enactment of the expanded FSIE regime as a transitional measure, or an advance ruling after the enactment of the expanded regime.
  • Provided that the proposed added assets are disclosed in the taxpayer’s previous application for Commissioner’s opinion or advance ruling on the compliance with the ES requirement, the opinion or ruling previously granted will remain applicable under the expanded FSIE regime.    

KPMG observation

Unlike the legislative exercise conducted in 2022 for introducing the FSIE regime, the government has launched a consultation to seek views on a number of outstanding issues before it continues to negotiate with the EU. 

For more information, contact a KPMG tax professional:

David Ling | davidxling@kpmg.com


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