Hong Kong tax newsletters

Chief Executive Mr John Lee presented his Policy Address 2023 to the Legislative Council on 25 October 2023. Mr Lee considered a vibrant stock market is vital for upholding Hong Kong’s status as an international financial centre and maintaining our competitiveness.

Having regard to the emergence of COVID-19’s variants and the uncertainties over the global economic outlook, the Financial Secretary, Mr Chan Mo-Po (“Mr Chan”) continued to adopt an expansionary fiscal policy in preparing the 2022-23 Budget with the objective of relieving the hardship of people and small and medium-sized enterprises and paving the way for the post-pandemic economic recovery.

To address harmful tax competition, the European Union (“EU”) has been requiring its Member States to refrain from introducing any new harmful tax measures and amend any laws or practices that are deemed to be harmful. With regard to non-EU jurisdictions, the EU has also been evaluating their tax regimes against international tax standards and put in place a list of non-cooperative jurisdictions for tax purposes (“EU List”). In October 2021, the EU placed Hong Kong on the watchlist of the EU List in view of the possible risks of double non-taxation arising from the tax exemption for offshore passive income in the absence of any requirement for recipient companies to have a substantial economic presence in Hong Kong. The EU’s main concern is the possible exploitation of the tax arrangement by shell companies for tax benefits.

The G20/OECD Inclusive Framework on BEPS (“IF”) has, on 1 July 2021, approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement” or so called “BEPS 2.0”). The Statement is approved by 133 countries and jurisdictions of the 139 countries and jurisdictions comprising the IF, including Hong Kong and China, as of 12 August 2021.

In November 2019, the OECD released the Global Anti-base Erosion (GloBE) proposal, the so-called Pillar 2 of the BEPS 2.0 project. On 12 October 2020, the G20/OECD Inclusive Framework on BEPS (“IF”) released two detailed “blueprints” in relation to its ongoing work to address the tax challenges arising from the digitalization of the economy (“Pillar 1”) and in relation to the tax rules designed to ensure that large multinational businesses pay a minimum level of tax on profits in all jurisdictions (“Pillar 2”). On 1 July 2021, 130 countries and jurisdictions, constituting vast majority of IF approved the “Statement on a Two-Pillar Solution to Address the Tax Challenges Arising From the Digitalization of the Economy” (the “Statement”). They agreed on a taxing right for market jurisdictions on at least 20% of the profits exceeding a 10% margin of large multinational enterprises (“MNE”) under Pillar 1 and a global minimum tax of at least 15% under Pillar 2.