Hong Kong has been added to the EU’s ‘grey list’ of non-cooperative tax jurisdictions (latest edition released on October 5, 2021) because of concerns about double non taxation of passive income.
According to the Inland Revenue Ordinance, Hong Kong does not tax capital gains, interest, or dividends, neither profits or revenue earned offshore. Therefore, companies are exempt from paying tax on income derived from offshore passive sources in both the country or region where it is generated in Hong Kong.
The Hong Kong government committed to amend the tax legislation by the end of 2022 and implement relevant measures in 2023 to meet EU standards.
If Hong Kong does not update its legislation by December 31, 2022, it will be moved to the blacklist. This could result in the application of several EU defensive measures such as increased withholding taxes and audits.
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