In October 2021, the European Union
("EU") placed Hong Kong
("HK") on its "watchlist" of
non-cooperative jurisdictions for tax purposes ("EU
List") over potential harmful tax practices arising
from the traditional exemption from tax granted to offshore passive
income, particularly where payment or recipient companies are not
required to demonstrate a substantial economic presence in HK. The
EU expressed its concerns over the possible exploitation of such
arrangements by HK shell companies, which often resulted in an
erosion to the tax base of its constituent member states.
In response to the concerns raised by the EU, the HKSAR
government moved quickly to gazette the Inland Revenue (Amendment)
(Taxation on Specified Foreign-sourced Income) Bill 2022 (the
"Bill" or "FSIE Regime") on 28 October 2022.
1 After the gazette of the Bill and subsequent
discussion with the EU, the HKSAR government has proposed two
amendments 2 in November 2022 to the Bill in the
Committee
