Hong Kong removed from EU watchlist following changes in regulations on foreign-sourced income

The European Union has removed Hong Kong from its watchlist of non-cooperative tax jurisdictions after the city made changes to its foreign-sourced income exemption regime.

The amendments require multinational enterprises that don’t meet certain requirements to pay tax on certain types of foreign-sourced passive income.

Key Takeaways

• Hong Kong has been removed from the EU watchlist of non-cooperative tax jurisdictions after amending its foreign-sourced income exemption (FSIE) regime, demonstrating its commitment to international tax standards.
• The new FSIE regime in Hong Kong requires multinational enterprises (MNEs) that lack substantial presence in the region to pay profits tax on certain types of foreign-sourced passive income, impacting MNEs that do not meet substance requirements.
• Despite the changes, Hong Kong continues to implement a territorial source principle of taxation,…