Hong Kong Tax News Flash

Dec 2023, Issue 20

Refinements to the FSIE regime and tax certainty enhancement scheme for onshore equity disposal gains passed into law

Two important tax legislative bills were recently passed into law. Firstly, the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023 (FSIE Bill 2023), together with the proposed Committee Stage Amendments that only involve minor textual amendments, were passed by the Legislative Council (LegCo) on 29 November 2023. The FSIE Bill 2023 seeks to refine the existing foreign-sourced income exemption (FSIE) regime under the Inland Revenue Ordinance (IRO) by expanding the scope of assets in relation to foreign-sourced disposal gains to cover assets other than equity interests. The FSIE Bill 2023 was gazetted as the Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Ordinance 2023 (FSIE Ordinance 2023) on 8 December 2023. The refined FSIE regime as amended by the FSIE Ordinance 2023 will come into operation on 1 January 2024.  

Then on 6 December 2023, the Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 (Enhancement Scheme Bill) that proposes the implementation of the tax certainty enhancement scheme (Enhancement Scheme), passed its third reading in the LegCo unamended. It is expected that the Enhancement Scheme Bill will be gazetted as an amendment ordinance on 15 December 2023. The Enhancement Scheme will apply to gains (i) derived from an eligible onshore equity disposal that occurs on or after 1 January 2024 and (ii) accrue in or after the year of assessment 2023/24.

Key features of the refined FSIE regime and the Enhancement Scheme were discussed in our previous news flashes. In this news flash, we outline some clarifications made by the Government on these two regimes during the legislative process, the newly added illustrative examples provided by the Inland Revenue Department (IRD) on the refined FSIE regime as well as the updates on the application for an advance ruling on compliance with the economic substance requirement (ESR).