What is Hong Kong's foreign-sourced income exemption (FSIE) regime?

foreign-sourced income exemption (FSIE) stands for foreign-sourced income exemption. Despite the name, the regime taxes certain foreign-sourced income unless an exception applies.

In short: a Hong Kong company in a multinational group may owe Hong Kong tax on foreign dividends, interest, IP income and share gains that it receives in Hong Kong, unless an exception applies.

Hong Kong's territorial system used to leave most foreign-sourced passive income untaxed. To meet international standards on double non-taxation, the FSIE regime now treats certain foreign-sourced income as arising in Hong Kong when it is received in Hong Kong by a member of a multinational enterprise (MNE) group.

Covered income

• Interest, dividends, IP income and equity interest disposal gains arising from 1 January 2023.
• Other disposal gains (non-equity property) arising from 1 January 2024.

Who is covered. An MNE entity: a member of a group that has at least one entity or permanent establishment outside the jurisdiction of its ultimate parent. A group of purely local individuals with a single Hong Kong company is not covered.

Exclusions. Income of regulated financial entities, entities enjoying specified tax concessions, and traders' non-IP disposal gains are carved out in defined cases.

Exceptions that keep income exempt

1. Economic substance requirement (interest, dividends, non-IP disposal gains).
2. Participation exemption (dividends and equity disposal gains).
3. Nexus requirement (qualifying IP income).
4. Intra-group transfer relief (defers tax on certain disposal gains).

If none applies, the income is taxed when received in Hong Kong.