HONG KONG Law and Practice Contributed by: Vincent Sum and Sylvia Leung, Mayer Brown
Foreign-Sourced Income Exemption (FSIE) Hong Kong introduced the FSIe, regime, effec - tive from 1 January 2023, which might be rel - evant for SPEs with income from outside Hong Kong. This regime is set to be further refined in 2024. It exempts foreign-sourced income from taxation in Hong Kong, subject to specific con - ditions. To mitigate potential tax liabilities, practitioners can typically employ the following strategies. • Ensuring territoriality of income – given Hong Kong’s territorial basis of taxation, SPEs may structure their transactions to ensure that the income generated by the financial assets is not considered to be sourced in Hong Kong. This would exempt such income from Hong Kong profits tax. • Utilising FSIe, regime – for income sourced outside Hong Kong, SPEs can leverage the FSIe, regime to claim exemption from Hong Kong tax. This requires careful structuring and adherence to the regime’s provisions to Hong Kong does not typically impose withhold - ing taxes on most types of payments, except in limited circumstances (eg, royalties) that would generally not be applicable in a securitisation. Therefore, SPEs receiving cross-border pay - ments under the financial assets or making payments under the securitisation transactions are generally not subject to withholding taxes in Hong Kong. 7.4 Other Taxes In Hong Kong, there is no value-added tax (VAT) or goods and services tax (GST). However, if the securitisation involves transfers of property, shares, or other assets that are subject to Hong qualify for the exemption. 7.3 Withholding Taxes
rate from the financial risks of the originator or its affiliates. 6.5 Bankruptcy-Remote SPE Refer to 6.2 SPEs .
7. Tax Laws and Issues 7.1 Transfer Taxes
Generally, a transfer of financial assets (eg, loans or receivables) is not subject to taxes. However, if the transfer involves interests in Hong Kong real estate or Hong Kong stocks, this could be subject to the payment of stamp duty. “Hong Kong stock” is defined to include not only equi - ties but also debentures, loan stocks, funds, bonds or notes denominated or redeemable in Hong Kong currency, and the transfer of which is registered in Hong Kong. Generally, most loans and receivables would not be regarded as “Hong Kong stock” for Hong Kong stamp duty purposes. The stamp duty requirements are more specifically set forth in the Stamp Duty Ordinance (Cap. 117). 7.2 Taxes on Profit SPEs engaged in securitisation transactions must consider several potential tax implications for income earned from financial assets. Hong Kong generally follows a territorial basis of taxa - tion, meaning that only income sourced in Hong Kong is subject to taxation. Profits Tax SPEs in Hong Kong are subject to profits tax on assessable income or profits arising in or derived from Hong Kong. This includes income from financial assets, provided the income is considered to be sourced in Hong Kong.
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