Consultation paper issued on further refinements to Hong Kong’s foreign-sourced income exemption regime

The Treasury Branch of the Financial Services and the Treasury Bureau (FSTB) issued a consultation paper on 6 April 2023 entitled “Refinements to Hong Kong’s Foreign-sourced Income Exemption Regime for Foreign-sourced Disposal Gains” (the Paper) seeking the views of stakeholders on the proposals contained in the Paper.

Just before Hong Kong implemented the existing FSIE regime (effective from 1 January 2023), in December 2022 the European Union (EU) promulgated its updated FSIE Guidance. This meant Hong Kong had no time in which to update the existing FSIE regime to incorporate the EU’s updated requirements.

As such, Hong Kong needs to further refine its existing FSIE regime by the end of 2023 for implementation from 1 January 2024 so as to be compliant with the EU’s updated FSIE Guidance. In the meantime, Hong Kong will continue to be on the EU’s watchlist.

The requirements of the updated FSIE Guidance are that the scope of foreign-sourced disposal gains cannot be confined to only equity interests as in the case of the existing FSIE regime. Instead, the scope of the FSIE regime should cover a non-exhaustive list of assets, regardless of whether they are financial or non-financial in nature.

This alert draws your attention to the proposed further refinements to the existing FSIE regime. If you have any views on the proposals made in the Paper, please contact your executives and we will convey the same to the FSTB in an appropriate manner.