Hong Kong: Draft legislation on expansion of FSIE regime to asset disposal gains passed by Legislative Council
Draft legislation expanding the existing FSIE regime to cover foreign-sourced gains from disposal of assets other than equity interests
Draft legislation expanding the existing foreign-sourced income exemption (FSIE) regime
Draft legislation expanding the existing foreign-sourced income exemption (FSIE) regime to cover foreign-sourced gains from disposal of assets other than equity interests was passed by the Legislative Council on 29 November 2023.
It is expected that the corresponding amendment ordinance will be gazetted in December 2023, and the expanded FSIE regime will be effective in Hong Kong from 1 January 2024. With the implementation of the expanded FSIE regime in Hong Kong, it is expected that the European Union (EU) will remove Hong Kong from the EU “grey list” in its next review of the list, which is scheduled to take place in February 2024.
The draft legislation for the expanded FSIE regime was published in the official gazette on 13 October 2023, and on the same day, the Inland Revenue Department (IRD) updated its guidance on the FSIE regime. Read TaxNewsFlash
Notable points in the IRD’s updated guidance include:
- An example to illustrate the newly introduced trader exclusion which applies to foreign-sourced gains from disposal of securities derived by a multinational enterprise (MNE) carrying on a securities trading business in Hong Kong
- New illustrative examples 35 to 39 on the newly introduced intra-group transfer relief for asset disposal gains and two further examples in the administrative guidance to illustrate (1) when group entities are regarded as having ceased to be associated for the purpose of the relief and (2) that an entity ceases to be chargeable to profits tax when it ceases to carry on its business in Hong Kong
The IRD also recently published Advance Ruling Case No. 72 on the application of the FSIE regime to a case involving an MNE in Hong Kong deriving foreign-sourced dividend income from a wholly owned foreign subsidiary carrying out substantive activities in a foreign jurisdiction that was enjoying a tax exemption for two years and 50% reduction of tax payable for the next four years in the foreign jurisdiction (with a headline income tax rate of 20%) but the dividends declared by the subsidiary would be paid out from its profits enjoying the 50% tax reduction. The IRD ruled that (1) the dividend income was not regarded as “received in Hong Kong” and (2) the “subject to tax” condition under the participation requirement of the FSIE regime was met.
For more information contact a KPMG tax professional:
David Ling | davidxling@kpmg.com
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.