Bill on foreign gains tax passed

On November 28, 2023, the Hong Kong government published a press statement in which it informs and welcomes the passing of the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023 by the Legislative Council. The Bill further refines the foreign-sourced income exemption (FSIE) regime for large Multi-National Entities (MNEs) 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. This „substance“ requirement must now be met for ALL forms of capital gains for the exemption to apply.
According to the press statement, the final version includes various exemptions and provides double taxation relief on gains on such assets. It also provides for a „treatment of disposal loss as well as business facilitating measures to reduce compliance burden“. A list of exemptions and detailed descriptions of the upcoming changes may be found here.
To conclude, the government notes that it will soon inform the EU of the changes and request a removal from its tax cooperation watchlist – which was the original motivation behind the changes to the FSIE regime. The updated regime will come into force on January 1, 2024.