What is Hong Kong's FSIE regime for foreign-sourced income?
The FSIE regime can tax four types of foreign-sourced passive income when received in Hong Kong by members of multinational groups: dividends, interest, disposal gains and IP income. It started on 1 January 2023, with disposal gains on non-equity assets added from 1 January 2024. Exceptions such as economic substance can keep the income exempt.
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
- Economic substance requirement (interest, dividends, non-IP disposal gains).
- Participation exemption (dividends and equity disposal gains).
- Nexus requirement (qualifying IP income).
- Intra-group transfer relief (defers tax on certain disposal gains).
If none applies, the income is taxed when received in Hong Kong.
Legal basis
- Inland Revenue Ordinance (Cap. 112), ss.15H–15OA
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
- How does an offshore profits claim work in Hong Kong?An offshore claim says that some or all profits did not arise in or derive from Hong Kong, so they are outside profits tax. You exclude them in the tax computation and report them in the return. The IRD can then make enquiries, and it is up to the taxpayer to prove the source with documents.
- What economic substance do I need to keep foreign dividends or interest exempt under the FSIE rules?A multinational group entity must show adequate substance in Hong Kong in the year the income accrues. A pure equity-holding entity needs adequate human resources and premises and must meet filing duties. Other entities need an adequate number of qualified employees and operating expenditure. The IRD sets no minimum numbers.
- Does my small Hong Kong company need transfer pricing documentation?Possibly not. A Hong Kong entity need not prepare a master file and local file if it meets any two of three tests: revenue not above HK$400 million, assets not above HK$300 million, or no more than 100 employees. A local file is also not needed for a transaction type below its threshold. The arm's-length principle still applies.
- 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.
- When will a new Hong Kong company receive its first profits tax return?The IRD generally issues the first Profits Tax Return about 18 months after the date of incorporation. A first-time recipient has 3 months from issue to file. If you are chargeable to tax and receive nothing, you must notify the IRD in writing within 4 months after the end of the basis period.