简介
Editorial
Joint Editors
- Jody Wong
- The Hong Kong Polytechnic University
- Percy Wong
- The Hong Kong Polytechnic University
- Philip Hung
- The Taxation Institute of Hong Kong
- Carol Liu
- The Taxation Institute of Hong Kong
- Kelvin Mak
- The Taxation Institute of Hong Kong
Editorial Consultants
- Nancy Su
- The Hong Kong Polytechnic University
- Nigel Eastaway
- MHA MacIntyre Hudson
- Michael Olesnicky
- TBC
- Charles Swenson
- University of Southern California, USA
- Daniel Thornton
- Queen's University, Canada
- Jefferson VanderWolk
- Squire Patton Boggs, USA
- Marcellus Wong
- AMTD Group
Editorial Board Members
- Brian Andrew
- University of Wollongong
- Wilson Cheng
- Ernst & Young Tax Services Limited
- Cheng Chi
- KPMG, China
- Sarah Chin
- Deloitte Touche Tohmatsu, HK
- Jeremy Choi
- PricewaterhouseCoopers, HK
- Spencer Chong
- PricewaterhouseCoopers, HK
- Wilson Chow
- The University of Hong Kong
- Daniel Ho
- Hong Kong Baptist University
- Patrick Ho
- FTMS Training System Limited
- Simon James
- University of Exeter
- Jeyapalan Kasipillai
- Monash University Malaysia
- Betty Kwok
- The Hang Seng University of Hong Kong
- Patrick Kwong
- Ernst & Young Tax Services Limited
- David Lai
- Hong Kong University of Science and Technology
- Stephen Lee
- Sinotax Services Limited
- Thomas Lee
- Thomas Lee & Partners
- Tak Yan Leung
- University of Sunshine Coast
- Poh Eng Hin
- Nanyang Technology University
- Anthony Tam
- Mazars
- Kalloe Vinod
- KPMG, Netherlands
- Jingyi Wang
- Chinese University of Hong Kong
- Fergus Wong
- PricewaterhouseCoopers, HK
- Chris Xing
- KPMG, China
- Eugene Yeung
- KPMG, China
编辑来函
In the last issue, we discussed the foreign source income exemption (FSIE) regime and the tax concessions for familyowned investment holding vehicles. The new FSIE regime came into operation on 1 January 2023, while the bill on the latter was passed by the Legislative Council in May 2023, with the tax concessions having retrospective effect for the year of assessment commencing on 1 April 2022.
However, the FSIE regime, which was enacted in response to the European Union’s (EU) inclusion of Hong Kong in its grey list of non-cooperative jurisdictions for tax purposes did not bring the matter to an end. On 14 February 2023, the EU announced the latest round of review of the lists, and Hong Kong remains on the grey list. The reason for this is that in December 2022, the EU updated its guidance on FSIE regimes, which now explicitly requires capital gains to be subject to the economic substance requirement. Hong Kong is therefore required to further fine-tune the law to
cover the treatment of foreign-sourced disposal gains in relation to assets other than shares or equity interests by the end of this year for implementation with effect from 1 January 2024.
In this respect, the Financial Services and the Treasury Bureau (FSTB) issued a consultation paper on 6 April 2023 to invite comments on the assets to be covered, the computation of disposal gains or losses, and the exemption or relief measures. The paper proposed the adoption of a definite and exhaustive list of covered assets, namely, debt instruments, movable properties, immovable properties, intellectual properties, and foreign currencies. However, this would be quite unacceptable to the EU, which clearly requires a non-exhaustive approach, as was adopted in other jurisdictions. In
regard to computing disposal gains or losses, the Government is exploring with the EU the possibility of rebasing the cost of assets at the effective date of the FSIE regime or, failing this, a tapered relief system which allows taxable gains to be reduced or “tapered” according to how long the assets have been held. After the public consultation and deliberation with the EU, the amendment bill is expected to be presented to the Legislative Council in October 2023.
On a separate but related matter, the FSTB issued another consultation paper on 23 March 2023 with the aim of providing upfront certainty of the non-taxation of onshore gains on disposal of equity interests. With the implementation of the FSIE regime, taxpayers may wish to consider structuring the disposal of equity interests onshore. While disposal gains which are capital in nature would not be chargeable to tax in Hong Kong under section 14, whether a gain is revenue or capital in nature is a question of facts to be determined on individual circumstances, applying the so-called badges of trade, which could lead to uncertainty. The consultation paper proposed that an eligible investor entity would not be
chargeable to tax on onshore equity gains if it has held at least 15 per cent of the total equity interest in the investee entity for a continuous period of at least 24 months ending on the date immediately before the disposal of such interest.
This proposal is more competitive than the equivalent safe harbour rule in Singapore, which requires the holding of at least 20 per cent of the ordinary shares in the investee company. Furthermore, the proposal is less restrictive as it applies to an investor entity, which could be a corporation, partnership, or trust, and also to different forms of equity interests (including preference shares and partnership interests). The amendment bill is expected to be introduced to the Legislative Council in the second half of the year for implementation on 1 January 2024.
Following the establishment of the mechanism for foreign funds to re-domicile to Hong Kong as open-ended fund companies or limited partnership funds in late 2021, the Government is now taking a further step to strengthen Hong Kong’s position as a global business and financial hub by introducing a mechanism for foreign companies to re-domicile to Hong Kong. A consultation paper was published by the FSTB on 31 March 2023, and the legislative amendment is expected to be submitted to the Legislative Council in 2023/24. The Hong Kong tax regime imposes profits tax on any person carrying on a trade, profession, or business in Hong Kong if the profits arise in or are derived from Hong Kong, regardless of its domicile. While the person’s tax liabilities will generally not be affected by the place of incorporation or re-domiciliation of their company, the consultation
paper proposed amending the Inland Revenue Ordinance to provide certainty to re-domiciled companies on their tax obligations and to empower the Inland Revenue Department to address transitional tax matters, such as fair deduction for trading stock, bad debts, impairment losses on financial assets, and depreciation which may have occurred before re-domiciliation. The Government intends not to impose any economic substance test for foreign companies to be eligible for the arrangement.
Traditionally, many multinational enterprises have set up companies in low or no tax jurisdictions, such as Bermuda and the Cayman Islands, to hold their investments or undertake specific business activities. These jurisdictions have implemented economic substance rules since 2019 and were seen to have stepped up their enforcement actions on compliance with the substance requirement. This, coupled with the imminent implementation of a new global minimum corporate tax of 15 per cent for in-scope multinational enterprises groups, may make the proposed regime attractive to multinational enterprises as it offers them a way to re-domicile companies incorporated in those jurisdictions to Hong Kong with minimal business disruption and in a cost-effective manner. On the other hand, Hong Kong may benefit from the increased demand for professional services, such as accounting and legal services, and increased investment and job opportunities when re-domiciled companies switch some operations to Hong Kong.
In this issue of the Journal, we have our regular article reviewing recent Board of Review decisions in the Hong Kong technical column. Also in this column, we have tax practitioners sharing with us the tax implications for SaaS business in Hong Kong and Asia-Pacific, and the new era of profits tax filing in iXBRL format. Recently, there have been a number of changes to Cambodian tax law. The belt and road column presents some useful information on doing business in Cambodia. Last but not least, we provide the 2023-24 budget proposals presented by the Institute and the
Institute’s commentaries to the 2023-24 Budget delivered by the Financial Secretary.
Finally, we would like to express our heartfelt thanks to the authors for contributing these insightful articles. Our special thanks go to the reviewers for their invaluable comments. We are of course most thankful to our readers for your continued support. We hope you will enjoy reading this issue of the Journal. We welcome any comments and suggestions to improve the content and quality of the Journal. If you have any views or suggestions on tax matters, be they policy issues or practical matters, you are most welcome to submit a letter to the editors.
The Joint Editors
July 2023
However, the FSIE regime, which was enacted in response to the European Union’s (EU) inclusion of Hong Kong in its grey list of non-cooperative jurisdictions for tax purposes did not bring the matter to an end. On 14 February 2023, the EU announced the latest round of review of the lists, and Hong Kong remains on the grey list. The reason for this is that in December 2022, the EU updated its guidance on FSIE regimes, which now explicitly requires capital gains to be subject to the economic substance requirement. Hong Kong is therefore required to further fine-tune the law to
cover the treatment of foreign-sourced disposal gains in relation to assets other than shares or equity interests by the end of this year for implementation with effect from 1 January 2024.
In this respect, the Financial Services and the Treasury Bureau (FSTB) issued a consultation paper on 6 April 2023 to invite comments on the assets to be covered, the computation of disposal gains or losses, and the exemption or relief measures. The paper proposed the adoption of a definite and exhaustive list of covered assets, namely, debt instruments, movable properties, immovable properties, intellectual properties, and foreign currencies. However, this would be quite unacceptable to the EU, which clearly requires a non-exhaustive approach, as was adopted in other jurisdictions. In
regard to computing disposal gains or losses, the Government is exploring with the EU the possibility of rebasing the cost of assets at the effective date of the FSIE regime or, failing this, a tapered relief system which allows taxable gains to be reduced or “tapered” according to how long the assets have been held. After the public consultation and deliberation with the EU, the amendment bill is expected to be presented to the Legislative Council in October 2023.
On a separate but related matter, the FSTB issued another consultation paper on 23 March 2023 with the aim of providing upfront certainty of the non-taxation of onshore gains on disposal of equity interests. With the implementation of the FSIE regime, taxpayers may wish to consider structuring the disposal of equity interests onshore. While disposal gains which are capital in nature would not be chargeable to tax in Hong Kong under section 14, whether a gain is revenue or capital in nature is a question of facts to be determined on individual circumstances, applying the so-called badges of trade, which could lead to uncertainty. The consultation paper proposed that an eligible investor entity would not be
chargeable to tax on onshore equity gains if it has held at least 15 per cent of the total equity interest in the investee entity for a continuous period of at least 24 months ending on the date immediately before the disposal of such interest.
This proposal is more competitive than the equivalent safe harbour rule in Singapore, which requires the holding of at least 20 per cent of the ordinary shares in the investee company. Furthermore, the proposal is less restrictive as it applies to an investor entity, which could be a corporation, partnership, or trust, and also to different forms of equity interests (including preference shares and partnership interests). The amendment bill is expected to be introduced to the Legislative Council in the second half of the year for implementation on 1 January 2024.
Following the establishment of the mechanism for foreign funds to re-domicile to Hong Kong as open-ended fund companies or limited partnership funds in late 2021, the Government is now taking a further step to strengthen Hong Kong’s position as a global business and financial hub by introducing a mechanism for foreign companies to re-domicile to Hong Kong. A consultation paper was published by the FSTB on 31 March 2023, and the legislative amendment is expected to be submitted to the Legislative Council in 2023/24. The Hong Kong tax regime imposes profits tax on any person carrying on a trade, profession, or business in Hong Kong if the profits arise in or are derived from Hong Kong, regardless of its domicile. While the person’s tax liabilities will generally not be affected by the place of incorporation or re-domiciliation of their company, the consultation
paper proposed amending the Inland Revenue Ordinance to provide certainty to re-domiciled companies on their tax obligations and to empower the Inland Revenue Department to address transitional tax matters, such as fair deduction for trading stock, bad debts, impairment losses on financial assets, and depreciation which may have occurred before re-domiciliation. The Government intends not to impose any economic substance test for foreign companies to be eligible for the arrangement.
Traditionally, many multinational enterprises have set up companies in low or no tax jurisdictions, such as Bermuda and the Cayman Islands, to hold their investments or undertake specific business activities. These jurisdictions have implemented economic substance rules since 2019 and were seen to have stepped up their enforcement actions on compliance with the substance requirement. This, coupled with the imminent implementation of a new global minimum corporate tax of 15 per cent for in-scope multinational enterprises groups, may make the proposed regime attractive to multinational enterprises as it offers them a way to re-domicile companies incorporated in those jurisdictions to Hong Kong with minimal business disruption and in a cost-effective manner. On the other hand, Hong Kong may benefit from the increased demand for professional services, such as accounting and legal services, and increased investment and job opportunities when re-domiciled companies switch some operations to Hong Kong.
In this issue of the Journal, we have our regular article reviewing recent Board of Review decisions in the Hong Kong technical column. Also in this column, we have tax practitioners sharing with us the tax implications for SaaS business in Hong Kong and Asia-Pacific, and the new era of profits tax filing in iXBRL format. Recently, there have been a number of changes to Cambodian tax law. The belt and road column presents some useful information on doing business in Cambodia. Last but not least, we provide the 2023-24 budget proposals presented by the Institute and the
Institute’s commentaries to the 2023-24 Budget delivered by the Financial Secretary.
Finally, we would like to express our heartfelt thanks to the authors for contributing these insightful articles. Our special thanks go to the reviewers for their invaluable comments. We are of course most thankful to our readers for your continued support. We hope you will enjoy reading this issue of the Journal. We welcome any comments and suggestions to improve the content and quality of the Journal. If you have any views or suggestions on tax matters, be they policy issues or practical matters, you are most welcome to submit a letter to the editors.
The Joint Editors
July 2023