Legislative bill for the refined FSIE regime passed its third reading today

Today, the Inland Revenue (Amendment) (Taxation on Specified Foreign-Sourced Income) Bill 2022 (the Bill), which seeks to refine the foreign-sourced income exemption (FSIE) regime of Hong Kong, passed its third reading in the Legislative Council (the Bill). The Bill as passed is expected to be gazetted and formally become law (the new law) next Friday.  

The Bill that passed the third reading is the same as the original legislative bill as subsequently amended by way of Bills Committee Stage Amendments (CSAs). As such, clients may refer to our previous alerts issued on 11 November 2022 (2022 Issue No. 15) and 17 November 2022 (2022 Issue No. 17), in which we explained and commented in detail on the key provisions of the original bill and the CSAs.

This alert highlights clarifications on certain provisions of the new law made by the government during the legislative scrutiny of the Bill. One clarification that is especially of note is that the “applicable tax rate” of not less than 15% under the “subject to tax” condition for disposal gains and dividends under the participation requirement will be interpreted as referring to the “headline tax rate” as opposed to the “actual tax rate” imposed on the income concerned in the foreign jurisdiction of source. 

Clients who wish to understand the implications of the refined FSIE regime for their businesses can contact their tax executives.

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