Pursuant to the HKSAR Government’s press release issued on October 5, 2021, Hong Kong has committed to amending its tax law by the end of year 2022 with new regulations taking effect on 1 January 2023, with no grandfathering arrangements.

In its press release, the HKSAR Government responds to the EU’s concerns relating to the non-taxation of certain foreign sourced passive income in Hong Kong, leading to the possibility of “double non-taxation”. Corporates with no substantial economic activity in Hong Kong are not subject to tax in respect of certain offshore passive income, such as interest and royalties.

The HKSAR Government has made it clear that they will continue to support the territorial source principle of taxation (also known as offshore claim) in Hong Kong and the tax law amendments will only focus on such corporations using passive income to avoid tax across borders. The amendments will not affect individuals or Hong Kong Companies.

Thus, companies that generate profits from royalties, interest, or other passive income generated outside Hong Kong will be the most affected by the amendments. However, the impact and response of businesses remain unclear.

We understand that the HKSAR Government is in consultation with stakeholders on the specific contents of the legislative amendments with an aim to minimising compliance burdens and maintaining the competitive taxation regime in Hong Kong.

Further updates to follow as the HKSAR Government make legislative amendments. Meanwhile, please do not hesitate to contact us at tax@zetland.biz.