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April 13, 2021
2021-0748

Hong Kong proposes to allow a tax deduction for foreign taxes charged on gross income basis

The Hong Kong Government introduced the Inland Revenue (Amendment) (Miscellaneous Provisions) Bill 2021 (the Bill) on 19 March 2021. The Bill proposes to allow a tax deduction for foreign taxes charged on a gross income basis. Subject to the passage of the Bill by the Legislative Council, the provisions of the Bill will apply to tax years beginning on or after 1 April 2021.

The proposed Bill seeks to:

  • Allow a tax deduction for foreign taxes on non-interest income (e.g., royalties) that were charged on a gross income basis and were either paid: (i) by a Hong Kong resident person in a non-Hong Kong tax treaty partner jurisdiction; or (ii) by a non-Hong Kong resident person in both a Hong Kong tax treaty and a non-Hong Kong’s tax treaty partner jurisdiction.

  • Allow a non-Hong Kong resident to claim a deduction for foreign taxes paid in respect of certain interest income from a Hong Kong tax treaty partner jurisdiction.1

  • Impose new restrictions that limit a non-Hong Kong resident person to claim a tax deduction in Hong Kong for foreign taxes paid referred to in (a) and (b) above only to the extent that such foreign taxes are not relieved from double taxation (by deduction or other method) in the jurisdiction of residence of the non-Hong Kong resident person.

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For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

Ernst & Young LLP (United States), Hong Kong Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

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ENDNOTE

  1. The existing rule allowing Hong Kong resident and non-Hong Kong resident persons to claim a deduction for tax paid in respect of interest income from a non-treaty partner jurisdiction will remain unchanged.
 

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