Oversight: Consultation on foreign source income exemption

Introduction

In June 2022, the Hong Kong government issued a paper (Paper) briefing members of the Legislative Council of Hong Kong (LegCo) on the proposal by the Financial Services and the Treasury Bureau (FSTB) to amend the Inland Revenue Ordinance (IRO) to refine Hong Kong's foreign source income exemption (FSIE) regime for passive income. Such proposal is intended to address concerns raised by the European Union (EU) in relation to double non-taxation and the "grey listing" of Hong Kong. The consultation in respect of the proposal commenced on 17 June 2022 and ended on 15 July 2022.

This Oversight first provides a brief overview of the background to the FSIE regime in Hong Kong. It then discusses the proposed changes to the FSIE regime and the practical implications arising from the implementation of the proposed changes to the FSIE regime.