Consultation paper re proposed refinement to the Foreign Source Income Exemption (FSIE) for passive income was out in June 2022

In June 2022, the Hong Kong Government issued a consultation paper about the Foreign Source Income Exemption (“FSIE”). This eblast elaborates the details.

I. Flow

‍

II. In-scope taxpayers

Hong Kong Constituent entities (“CE”) of a Multinational Enterprises (“MNE”) Group.

“Group” means any group that includes at least 1 entity or Permanent Establishment (PE) that is not located in the jurisdiction of the ultimate parent entity.

“CE” examples : corporations, partnerships, trusts, permanent establishments

‍

III. In-scope offshore passive income (4 types)

Below income received in Hong Kong:

1. Income from patent, copyright, trademark (“IP Income”)
2. Disposal gains in relation to shares or equity interest (“Disposal gains”);
3. Dividend income; and
4. Interest income.

‍

IV. Impact

Any in-scope offshore passive income received by the in-scope taxpayers in Hong Kong will be subject to Hong Kong Profits Tax.

Tax credit available for foreign tax paid
Taxpayers with income subject to tax under the FSIE can claim tax credits in respect of the foreign tax paid for the taxable offshore passive income in overseas jurisdictions.

The tax credit claim can be lodged under existing double tax treaties with Hong Kong or a unilateral tax credit which will be introduced to the taxpayers for the purpose of FSIE.

‍

V. Exemptions available

a. For IP Income – Nexus approach

Qualifying expenditures to develop patent
(uplift 30% but cap to the overall
expenditures to develop patent)

Exempt Income    =    Patent Income    X        ———————————————————————————

Overall expenditures to develop patent

‍

• Nexus approach only applies to patents (or IP functionally equivalent to patent);
• Qualifying expenditures-
  

not include:
patent acquisition cost;
include:
research & development (“R&D”) expenditures directly connected to the concerned patent;
i.    Conducted by taxpayer in HK; or
ii.   Outsourced to
• HK resident related parties in HK; or
• Unrelated parties anywhere.

‍

b. For Interest Income – Economic Substance (“ES”) test / Outsourcing requirement

i. ES Test

Taxpayers must fulfill ALL below:

1. Making necessary strategic decision;
2. Managing and assuming principal risks in respect of any assets it acquires, holds or disposes of with regard to related assets in Hong Kong;
3. Adequacy test –

• Adequate number of qualified employees in Hong Kong; and
• Adequate amount of operating expenditures in Hong Kong.

‍

ii. Outsourcing requirement

Taxpayers may outsource activities to be conducted in Hong Kong with adequate monitoring.

‍

c. For Disposal Gains, Dividend Income – ES test / Outsourcing requirement / Participation Exemption

i. ES Test
(a) Pure equity holding companies

Reduced ES Test

1. Holding and managing equity participation;
2. Complying with the Hong Kong corporation law filing requirements;
3. Adequacy test-

• Adequate number of qualified employees in Hong Kong; and
• Adequate amount of operating expenditures in Hong Kong.

“Pure equity holding companies” mean companies-

• only acquire and hold shares / equitable interests in companies; and
• only earn dividends and disposal gains

‍

(b) Non-pure equity holding companies

Same as Part Vb. above.

‍

ii. Outsourcing requirement

Same as Part Vb. above for all companies

‍

iii. Participation exemption

All companies must fulfill ALL the below:-

1. The taxpayer is a Hong Kong resident persons / a non-Hong Kong resident person that has a permanent establishment (“PE”) in Hong Kong;
2. The taxpayer holds at least 5% in the shares / equity interest of the investee company; and
3. No more than 50% of the income derived by the investee company is the 4 types in-scope income.

‍

Anti-abuses rules to participation exemption

Participation exemption is however not applicable to the taxpayers under below scenarios:-

1. Anti-hybrid mismatch rule
   The dividend payment is deductible for investee company.
2. Switch-over rule
   The income / profits of the investee company are subject to tax in a foreign jurisdiction with a headline tax rate below 15%.
   Instead, the taxpayers can opt for the foreign tax credit relief.
3. Main purpose rule
   The main purposes of the arrangement(s) is obtaining tax advantage / tax exemption.

‍

VI. Undefined items

Below terms in bold are still pending for the Hong Kong government to define / clarify for the implementation purpose:-

• Offshore passive income received in Hong Kong
• Adequate number of qualified employees in Hong Kong
• Adequate amount of operating expenditures in Hong Kong
• Taxpayers may outsource activities to be conducted in Hong Kong with adequate monitoring
• The income / profits of the investee company are subject to tax in a foreign jurisdiction with a headline tax rate below 15%

‍

Appendix 1

Illustrative diagram re-proposed refinement to the Foreign Source Income Exemption (FSIE) for passive income
https://portcullis.co/pdf/Final_FSIE mind map(5 Sept 2022)-EN.pptx

‍

Appendix 2

Comparison of taxation system between Hong Kong and Singapore applying to Corporations
https://portcullis.co/pdf/Final_Comparison between Hong Kong and Singapore taxation systems(30 Sept 2022)-EN.xlsx

‍

We are more than happy to discuss with our clients about FSIE. Should you have any questions to the above, please feel free to contact-

‍

Pisces Wong | Senior Accounts and Tax Manager
Portcullis Tax Services (HK) Limited
15/F, BOC Group Life Assurance Tower,
No. 136 Des Voeux Road Central, Central, Hong Kong
Tel: (852) 2525 9991 | Direct Line: (852) 3173 1046
Email: pisces.wong@portcullis.co

‍

‍

2022年6月发布了关于豁免离岸被动收入（FSIE）进行改进的咨询文件

‍

2022年6月，香港政府发布了一份关于离岸被动收入豁免（“FSIE”） 的草案内容。这个 eblast详细说明有关细节。

‍

一、FSIE之发展

二、目标纳税人

跨国企业（“MNE”）集团的香港组成实体（“CE”）。
“MNE集团”意即至少有1间实体或常设机构于其最终母公司所属税务管辖区域以外。
“CE”包括 公司、合作业务、信托、常设机构

‍

三、受影响之离岸被动收入（4类）

以下在香港收取的收入：

1. 专利、版权、商标收入（“知识产权收入”）；
2. 转让股权之获利（“转让获利”）；
3. 股利收入；和
4. 利息收入。

‍

四、影响

目标纳税人在香港收取的上述离岸被动收入均须缴纳香港利得税。

外国已缴税款可享受税收抵免
如纳税人的上述离岸被动收入已在海外税务区域缴税，则可申请税收抵免。

税收抵免可根据香港已与各地签订的《全面性避免双重课税协定》或为FSIE而引入的 ⌈单方面税收抵免⌋来进行。

‍

五、可用的豁免

甲、知识产权收入—关联法

符合条件的研发专利支出
（可上涨至其130%
但不得超出研发专利的全数支出）

豁免收入金额     =      专利收入       X       ——————————————————————————————

研发专利的全数支出

• 关联法仅适用于专利（或功能等同于专利的知识产权）；
• 符合条件的支出-

不包括：
购置专利的成本；
包括：
直接研发相关的专利；及
所有用于以下研发活动的支出-

i.    由该纳税人于香港境内进行；或
ii.   外判予
•  纳税人的关联方（须属香港税务居民）在香港境内进行；或
•  第三方于任何地方进行

‍

乙、利息收入 — 经济实质 （“ES”）测试 ⁄ 外包要求

i.     ES测试
纳税人必须满足以下所有条件：

1. 作出必要的战略决策；
2. 管理和承担其购入、持有或弃置任何于香港资产的首要风险；
3. 充分性的测试—
   •  在香港聘用足够数量的合资格雇员；和
   •  在香港产生足够的营运开支。

‍

ii.   外判要求
纳税人把在香港的经济实质活动外判予其他单位在香港进行，而纳税人对有关活动有足够的监察。

‍

丙、转让获利、股息收入—ES测试 ⁄ 外包要求 ⁄ 参与豁免

i.     ES测试
（a）纯股权控股公司

减少ES测试

1. 持有和管理参股；
2. 符合香港《公司法》申请要求；
3. 充分性的测试—
   •  在香港聘用足够数量的合资格雇员；和
   •  在香港产生足够的营运开支。

‍

（b）非纯股权控股公司
与上述第五乙（i）部分相同。

ii.    外判要求
上述第五乙（ii）部分相同，适用于所有类型公司。

iii.   参与豁免
所有公司必须满足以下所有要求：—

1. 纳税人是香港居民 ⁄ 在香港有常设机构（“PE”）的非香港居民；
2. 纳税人持有被投资公司至少5%的股份 ⁄ 股权；和
3. 被投资公司的上述4类离岸被动收入不得超过其总收入的50%。

‍

用于 ⌈参与豁免⌋的泛滥用规则
然而，参与豁免不适用以下情况的纳税人：—

1. 防杂错配规则
   被投资公司的股息支出可作税务抵扣。
2. 切换规则
   被投资公司的收入 ⁄ 利润已在外地纳税，而其总体税率低于 15%。
   此情况下，纳税人可以选择申请税收抵免。
3. 主要目的规则
   纳税人的整个投资架构、派股息安排之主要目的为获得税务优惠 ⁄ 税务豁免。

‍

六、未定义的项目

以下粗体字仍有待香港政府界定 ⁄ 厘清，以供实施：—

• 在香港收取的离岸被动收入
• 在香港聘用足够数量的合资格雇员
• 在香港产生足够的营运开支
• 纳税人把在香港的经济实质活动外判予其他单位在香港进行，而纳税人对有关活动有足够的监察。

‍

附录 1

关于豁免离岸被动收入（FSIE）进行改进的说明图
https://portcullis.co/pdf/Final_FSIE mind map(5 Sept 2022)-CS.pptx

‍

附录 2

香港与新加坡的税制比较表（适用于法团）
https://portcullis.co/pdf/Final_Comparison between Hong Kong and Singapore taxation system(28 Sept 2022)-Chinese.xlsx

‍

我们欢迎企业咨询我司的税务顾问。若对上述事项有任何疑问，欢迎联络—

‍

黄英妍
资深会计及税务经理
中环德辅道中134-136号中银集团人寿保险大厦15楼
电话:(852)2525 9991 | 直线: 3173 1046 |
传真:(852)2877 6852
电邮: Pisces.Wong@portcullis.co | 网址: www.portcullis.co