December 2022 / Hong Kong

December 14 2022

Government welcomes passage of bill on foreign-sourced income exemption regime

The Government welcomes the passage of the Inland Revenue (Amendment) (Taxation on Specified Foreign-sourced Income) Bill 2022 by the Legislative Council today (December 14). The bill introduces a new foreign-sourced income exemption (FSIE) regime for passive income in Hong Kong, which will take effect on January 1, 2023.

The bill strengthens Hong Kong's tax regime for better combatting cross-border tax avoidance arising from double non-taxation and fulfils the commitment made by Hong Kong to the European Union in 2021 to amending its tax law.

The Secretary for Financial Services and the Treasury, Mr Christopher Hui, said, "The new FSIE regime not only upholds the territorial source principle of taxation, but also maintains the tax competitiveness of Hong Kong. Under the regime, multinational enterprise entities which have a substantial economic presence in Hong Kong will continue to be able to claim tax exemption for specified foreign-sourced passive income, namely interest, dividends and disposal gains in relation to shares or equity interests, received in Hong Kong. Foreign-sourced intellectual property income from qualifying intellectual property received in Hong Kong will also be exempt to the extent that the nexus requirement is complied with. Individuals and local companies will not be affected."

The FSIE regime will put in place an economic substance requirement and nexus requirement to safeguard against possible exploitation of Hong Kong's tax arrangement by shell companies to achieve double non-taxation in respect of foreign-sourced passive income.

To assist taxpayers concerned in complying with the new regime, the Inland Revenue Department (IRD) will implement a package of tax compliance facilitating measures, which seeks to minimise compliance burden on affected taxpayers, enhance tax certainty and ensure tax transparency. These include simplified reporting procedures and the publishing of administrative guidance with illustrative examples on its website. A dedicated team has also been set up by the IRD to provide technical support. Taxpayers may also apply from the IRD for advance rulings on whether the economic substance requirement is met under the FSIE regime.

Source: Inland Revenue Department 

December 30 2022

Interest on Tax Reserve Certificates

As reported on the Government Gazette, the Secretary for Financial Services and the Treasury has authorised a change in the rate of interest payable on Tax Reserve Certificates. From January 3, 2023, the new annual rate of interest will be 0.5833 per cent against the current rate of 0.4000 per cent, i.e. the new rate will be $0.0486 per month per $100.

Tax Reserve Certificates bear simple interest, and interest is calculated monthly (including part of a month) from the date of purchase to the date of payment of tax.

Interest is only credited when certificates are used to pay tax and no interest is due where the principal value of a certificate is repaid to its holder. The rate of interest payable on Tax Reserve Certificates is periodically revised in line with the market trend. Currently, it is reviewed every month based on the average prevailing interest rate for the 12-month time deposit for $100,000 to $499,999 offered by the three note-issuing banks. The new rate will apply to all certificates purchased on or after January 3, 2023. Certificates purchased before January 3, 2023, will continue to earn interest at the rates prevailing on their respective purchase dates. Below is a summary of the interest rates for the past periods:
For certificates purchased on or after May 3, 2021, and before June 7, 2021: 0.0833 per cent per annum
For certificates purchased on or after June 7, 2021, and before June 6, 2022: 0.0500 per cent per annum
For certificates purchased on or after June 6, 2022, and before October 3, 2022: 0.1333 per cent per annum
For certificates purchased on or after October 3, 2022 and before November 7, 2022: 0.1750 per cent per annum
For certificates purchased on or after November 7, 2022, and before December 5, 2022: 0.3167 per cent per annum
For certificates purchased on or after December 5, 2022, and before Janaury 3, 2023: 0.4000 per cent per annum
For certificates purchased on or after Janaury 3, 2023, until further    notice: 0.5833 per cent per annum
This is always subject to the general rule that interest ceases to accrue after 36 complete months.   Source: Inland Revenue Department