(IMPORTANT) EU putting Hong Kong on “greylist” for not taxing foreign source income
Circular Ref: A(21)247
Issue Date: 21 Dec 2021
As you may be aware, with effect from 5 October 2021, the Council of the European Union has added various jurisdictions, including Hong Kong, to Annex II to the Council conclusions on the revised EU list of non-cooperative jurisdictions for tax purposes (commonly known as the “greyest”).
To avoid being moved to the blacklist, the concerned jurisdictions have to make necessary changes to their legislation by 31 December 2022.
The Association has discussed the matter with the HKSAR Government. More recently, we have been given the following advice:
- The HKSAR Government has been actively engaging with the EU on the matter.
- The EU has included Hong Kong in its watchlist on tax co-operation as it considers that corporates with no substantial economic activity in Hong Kong are not subject to tax in respect of certain offshore passive income and will lead to circumstances of “double non-taxation’.
- Hong Kong has committed to the EU to make necessary amendments to the Inland Revenue Ordinance. The legislative amendments will "merely target corporations with no substantial economic activity in Hong Kong, that make use of passive income to evade tax across a border".
- “Hence, shipping companies with substantial economic activity and non-passive income should not be affected.”
- The HKSAR Government will consult stakeholders on the specific contents of the proposed legislative amendments, with a view to minimising the compliance burden of corporates.
We will continue to monitor the situation, and keep members posted about the development.