In this course · 7 of 7
Course 4
Claim offshore and foreign income
7 lessons · 8 min
- 1How do I claim offshore profits tax exemption in Hong Kong?
- 2What happens when the IRD questions my offshore profits claim?
- 3Do overseas directors make a Hong Kong company's profits offshore?
- 4What is Hong Kong's foreign-sourced income exemption (FSIE) regime?
- 5What economic substance do I need for FSIE exemption in Hong Kong?
- 6How does the FSIE participation exemption work for foreign dividends?
- 7Does the FSIE regime apply to my small Hong Kong company?
The short answer
A Hong Kong company is covered by the foreign-sourced income exemption (FSIE) rules only if it is part of a multinational enterprise (MNE) group, meaning a group with at least one entity or permanent establishment outside the ultimate parent's jurisdiction. Size does not matter. A Hong Kong company owned by individuals with no foreign branch or subsidiary is outside the rules; a foreign parent or overseas subsidiary generally brings you in.
The foreign-sourced income exemption (FSIE) rules apply only to an MNE entity: a person that is, or acts for, an MNE group or an entity included in an MNE group.
An MNE group is a group with at least one entity or permanent establishment that is not located in the jurisdiction of the group's ultimate parent. In plain terms:
- A Hong Kong company owned by Hong Kong individuals, with no foreign subsidiary or branch, is not covered.
- A Hong Kong company with a foreign parent, or a Hong Kong company that owns a foreign subsidiary, is probably covered.
- A Hong Kong company with a branch (permanent establishment) abroad may be covered.
Size is not the test. There is no revenue floor in the FSIE definition (unlike the Pillar Two threshold of EUR 750 million), so a small company in a small group can be caught.
Does it matter in practice? Only if you receive foreign-sourced dividends, interest, IP income or disposal gains into Hong Kong. A trading company with only trading income is not affected by FSIE for that income.
Action: if you are covered and receive such income, test the economic substance requirement or participation exemption each year, and keep evidence.
Legal basis and sources
The law
- Inland Revenue Ordinance (Cap. 112), s.15H
Official sources
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
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