Does the FSIE regime apply to my small Hong Kong company?
Only if the company is a member of a multinational enterprise group, meaning a group with at least one entity or permanent establishment outside the ultimate parent's jurisdiction. A Hong Kong company owned by individuals with no foreign branch or subsidiary is outside the FSIE rules. A foreign parent or overseas subsidiary generally brings you in.
The 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
- Inland Revenue Ordinance (Cap. 112), s.15H
Sources
Applies to YA 2025/26 · Last reviewed 29 October 2026
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.
Related questions
- Does a Hong Kong company pay tax on profits earned overseas?Generally no. Profits sourced outside Hong Kong are outside the profits tax charge, even if the company is incorporated here. The exceptions are certain foreign-sourced passive income received in Hong Kong by members of multinational groups under the FSIE regime, and any profits the IRD finds are actually sourced in Hong Kong.
- Does it matter where a Hong Kong company's directors make decisions when claiming offshore profits?It is a factor but usually not the deciding one. The IRD and the courts look first at the operations that actually earned the profit and where they took place. The place where day-to-day investment or business decisions are taken is only one factor, so directors abroad do not by themselves make profits offshore.
- Does Hong Kong's global minimum tax (Pillar Two) affect my SME?No, unless your group is very large. The global minimum tax and Hong Kong minimum top-up tax apply only to multinational groups with annual consolidated revenue of EUR 750 million or more in at least two of the four preceding fiscal years. They apply from fiscal years beginning on or after 1 January 2025.
- What is Hong Kong's territorial source principle of taxation?Hong Kong charges profits tax only on profits that arise in or are derived from Hong Kong from a trade, profession or business carried on here. Profits that have a source outside Hong Kong are not chargeable. Where the source lies is a question of fact, decided case by case.
- Does Hong Kong have VAT, GST or sales tax?No. Hong Kong has no value-added tax, goods and services tax or sales tax. The only taxes on income are profits tax, salaries tax and property tax, plus duties such as stamp duty. The government also confirms there is no capital gains tax and no withholding tax on dividends or interest.