Recent and upcoming tax changes affecting companies and individuals operating in Hong Kong, including FSIE regime updates, profits tax structure, stamp duty relaxations, and OECD BEPS 2.0 implementation.
In force1 January 2023
international
Foreign-sourced Income Exemption (FSIE) regime
Passive income (dividends, interest, IP income, and disposal gains) remitted to Hong Kong from foreign sources is now taxable unless specific economic substance tests are met. The regime was expanded in January 2024 to cover all foreign-sourced disposal gains.
What changed and what to do
What changed
Hong Kong enacted the FSIE regime on 1 January 2023 in response to EU and OECD pressure, removing the long-standing offshore claim for passive income. From 1 January 2024 the scope was widened to include all foreign-sourced disposal gains, not only those on equity interests. Companies must demonstrate adequate economic substance in Hong Kong, or qualify under a participation exemption or nexus approach, to avoid taxation on remitted passive income.
Who it affects
Hong Kong holding companies receiving foreign dividends
Companies with offshore IP arrangements
Businesses earning interest from foreign group entities
MNE groups disposing of foreign assets and remitting gains to HK
What to do
Review your group structure to assess whether Hong Kong entities receiving passive income meet the economic substance tests. Document substance (employees, premises, decision-making) and consider whether the participation exemption or nexus approach applies. Groups that previously relied on the offshore claim for passive income should seek advice on restructuring options before the next remittance.
The first HK$2 million of assessable profits is taxed at 8.25% for corporations (7.5% for unincorporated businesses), with the standard 16.5% (15%) rate applying above that threshold. Only one entity per connected group may benefit.
What changed and what to do
What changed
From the 2018/19 year of assessment onwards, Hong Kong introduced a two-tier structure to reduce the profits tax burden on smaller businesses. The concessionary rate of 8.25% halves the standard 16.5% corporate rate on the first HK$2 million of profits. A connected-entity restriction ensures only one member of a corporate group can apply the lower tier, preventing artificial splitting.
Who it affects
All Hong Kong incorporated companies with assessable profits
Unincorporated businesses (sole traders and partnerships)
SMEs and startups with profits under or around HK$2 million
Connected groups where only one entity may claim the lower rate
What to do
Ensure your profits tax return correctly applies the two-tier rates. If you operate multiple connected entities, confirm which one is claiming the lower tier and that the group has not double-claimed. Unincorporated businesses should note their applicable rates (7.5% / 15%) differ from incorporated entities.
Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD) were fully abolished in February 2024. The holding period for Special Stamp Duty (SSD) was also reduced, significantly relaxing property transaction costs introduced between 2010 and 2013.
What changed and what to do
What changed
The government announced in the 2024-25 Budget that BSD (15% surcharge on non-permanent residents and companies) and NRSD (also 15% for all buyers on second or subsequent residential properties) were abolished with immediate effect from 28 February 2024. SSD, which applied to properties resold within 24 months, had its holding period shortened. These cooling measures had been in place for over a decade and were removed as the property market softened significantly.
Who it affects
Non-permanent residents buying Hong Kong residential property
Companies acquiring residential property
Individuals purchasing a second or additional residential property
Property investors considering short-term resales
What to do
Buyers who were previously deterred by the 15% surcharges can now transact without these additional duties. Standard ad valorem stamp duty on the purchase price still applies. If you are considering a residential investment, confirm the current SSD holding period thresholds before transacting, as SSD still applies to very short-term disposals.
Hong Kong has committed to implementing the OECD Crypto-Asset Reporting Framework by 2026. Crypto-asset service providers and exchanges will be required to collect and report customer data to the IRD for automatic exchange with partner jurisdictions.
What changed and what to do
What changed
Following the OECD's finalisation of CARF in 2022, Hong Kong confirmed it will adopt the framework as part of its international tax transparency commitments. The IRD will require licensed virtual asset trading platforms (VATPs) and other crypto-asset service providers to conduct due diligence on customers and report transaction data, mirroring the Common Reporting Standard (CRS) regime already in place for financial accounts. Legislation is expected to be enacted ahead of the 2026 start date.
Who it affects
Licensed virtual asset trading platforms (VATPs) in Hong Kong
Crypto brokers and exchange operators
Individuals and businesses holding crypto assets on Hong Kong platforms
MNEs with treasury functions using crypto assets
What to do
Businesses operating crypto exchanges or platforms in Hong Kong should monitor IRD guidance on CARF implementation and begin updating KYC and customer due diligence procedures. Individuals and companies with significant crypto holdings should be aware that transaction data will be reportable and ensure their tax returns accurately reflect crypto gains and income.
Hong Kong has confirmed a Domestic Minimum Top-up Tax (DMTT) for large multinational groups with global revenues of €750 million or more, ensuring an effective tax rate of at least 15% on Hong Kong profits. Applies from 2025.
What changed and what to do
What changed
In line with the OECD/G20 Inclusive Framework, Hong Kong legislated the DMTT as part of its Pillar Two implementation. Groups meeting the €750 million revenue threshold will face a top-up charge in Hong Kong if their effective tax rate on Hong Kong profits falls below 15%. Given Hong Kong's standard profits tax rate of 16.5%, most in-scope entities are not expected to face a top-up on their primary profits, but certain incentive regimes and exemptions (including the two-tier rate) could bring the effective rate below the minimum for some entities.
Who it affects
Multinational enterprise groups with €750m+ global revenues
MNE Hong Kong subsidiaries and headquarters
Groups benefiting from IP box regimes or other tax incentives
Holding companies with significant passive income exemptions
What to do
In-scope MNE groups should model their effective tax rate in Hong Kong under the GloBE rules. Review whether any exemptions or incentives used in Hong Kong reduce your ETR below 15% and assess the resulting DMTT exposure. Engage your tax adviser to consider whether restructuring or simplification of incentive arrangements is warranted ahead of the 2025 effective date.