Hong Kong SAR remains on European Union’s “grey list” due to scope of FSIE

On 14 February 2023, the European Union (EU) issued a revised list of noncooperative jurisdictions for tax purposes. Hong Kong SAR is still on annex II of the revised list (annex II is referred to as the “grey list”) notwithstanding that it implemented the Foreign-source Income Exemption (FSIE) regime at the beginning of this year. The EU considered that the scope of Hong Kong SAR’s FSIE regime, which only covers disposal gains on equity interests, is not sufficiently wide and should include disposal gains on other assets (e.g., financial, and nonfinancial assets, etc.). Thus, Hong Kong SAR remains on the EU’s grey list, and the EU requires Hong Kong SAR to refine the FSIE regime to broaden the scope of disposal gains. Hong Kong SAR is required to amend its FSIE regime with respect to the foreign-source disposal gains by 31 December 2023. The government will conduct a consultation in March 2023 to seek stakeholders' comments on how to refine the FSIE regime with respect to such gains.

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