Gazettal of Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023

On October 11, 2023, the Hong Kong government published a press statement to announce the upcoming gazettal of the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023. The Bill, once passed by the Legislative Council, will make further amendments to Hong Kong’s tax regime following the EU’s reassessment of Hong Kong’s practices with respect to the taxation of large multi-national entities (MNEs) and the further inclusion of Hong Kong on the EU’s list of jurisdictions that have committed to satisfy all the conditions of the EU’s guidance on foreign-sourced income exemption (FSIE), but have not yet managed to satisfy all provisions.
Specifically, the Bill will further refine the FSIE regime that has been in place since January 1, 2023. The current regime requires MNEs to meet the „substance“ requirement – that is the requirement that the entity has a „substantial economic presence“ in Hong Kong – for passive foreign income on dividends, interest, equity disposal gains and intellectual property to be excluded from taxation in Hong Kong. As the EU changed its guidance in October 2022 to require that the „substance“ requirement must be met for ALL capital gains, the government is now revising the FSIE regime accordingly.
In detail, the Bill will expand the scope of assets „in relation to foreign-sourced disposal gains to cover assets other than shares or equity interests“. According to the press statement, disposal gains derived by traders of assets will be exempt from the FSIE regime. Also, the Bill will provide taxation relief for intra-group asset transfers by deferring any taxation when assets are transferred within associated entities, subject to certain conditions. Furthermore, the Bill will maintain provisions for alleviating potential double taxation on gains on such assets through corresponding double taxation relief.
To conclude, the government notes that it remains committed to offering a range of measures aimed at supporting businesses, such as streamlining reporting procedures, offering advance rulings, providing administrative guidance, and furnishing technical assistance through the Inland Revenue Department to facilitate tax compliance.
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The gazettal was originally announced for October 13, 2023, but has been delayed as outlined in the enclosed other press statements (please see the links provided in the link background).