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The New Foreign-sourced Income Regime In Hong Kong From 2023 Onwards

The New Foreign-sourced Income Regime in Hong Kong from 2023 onwards

The new foreign-sourced income regime in Hong Kong from 2023 onwards. 

The latest international tax standards require a taxpayer benefitting from a preferential tax treatment in a jurisdiction to have a 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.

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.

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:



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


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


  • 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

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.


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