IRD updates Illustrative Examples for FSIE regime with both disposal gains and losses eligible for intra-group transfer relief

Last Friday, on 8 December 2023, the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Ordinance 2023 (the Ordinance) was gazetted, thereby formally becoming law effective from 1 January 2024. 

Subject to certain carve-outs and reliefs, the Ordinance expands the scope of foreign-sourced disposal gains under the FSIE regime from equity interests only to cover all kinds of movable and immovable assets.

In other words, unless carved-out and relieved, such disposal gains, when received in Hong Kong, will be subject to tax in Hong Kong, if the exemption conditions such as the satisfaction of the economic substance requirement for non-intellectual properties (non-IP assets) or the nexus ratio for IP assets are not met.

A major carve-out under the FSIE regime is gains on the disposal of assets which are sold in the ordinary course of business of a taxpayer. In terms of relief, subject to certain conditions, gains on the disposal of assets from one entity to its associated entity would be eligible for the intra-group transfer relief. 

Upon the gazettal of the Ordinance, the Inland Revenue Department has updated its administrative guidance on the FSIE regime together with Illustrative Examples posted on its website. 

Clients who have any questions on the above or other provisions of the FSIE regime can contact their tax executive.