HKSARG welcomes EU's removal of Hong Kong from watchlist on tax co-operation

Feb 21, 2024

The Hong Kong Special Administrative Region (HKSAR) Government today (February 20) welcomed the removal of Hong Kong from the European Union (EU)'s watchlist on tax co-operation in recognition of Hong Kong's efforts in ensuring that its foreign-sourced income exemption (FSIE) regime is in full compliance with the EU's relevant requirements.

In response to the EU's inclusion of Hong Kong in its watchlist in 2021, the HKSAR Government introduced in January 2023 a new FSIE regime, under which multinational enterprise entities receiving foreign-sourced dividend, interest, income derived from the use of intellectual properties and disposal gain in relation to shares or equity interests in Hong Kong must satisfy the economic substance requirement to enjoy tax exemption. In December 2022, the EU promulgated an updated Guidance on FSIE Regimes, explicitly setting out disposal gains as a general class of income covered by an FSIE regime and subjecting the taxpayers concerned to the economic substance requirement. Jurisdictions with ongoing FSIE reforms, including Hong Kong, were kept in the watchlist pending completion of the necessary legislative amendments.

More information can be obtained from the Press Release of the Inland Revenue Department : IRD PRESS RELEASE

Or the special webpage on the FSIE Regime in the Inland Revenue Department webpage : FSIE Regime