Under the expanded FSIE regime (effective 2023+, tightened 2026), Hong Kong companies claiming offshore treatment for passive income — interest, dividends, capital gains — must meet economic substance requirements: adequate staff, expenditure, and decision-making in HK or the source jurisdiction.
The Foreign-Sourced Income Exemption (FSIE) regime, expanded in 2023 and refined through 2025-26, covers interest, dividends, and disposal gains from offshore entities. Mere paper claims no longer work: to keep exemption, the HK company must pass the economic substance test — sufficient qualified employees, operating expenditure, and actual management/decision activities. Alternatively, the income must fall under the related-party or intra-group transaction carve-outs with proper transfer pricing documentation. Pure shell companies receiving dividends from offshore operations face taxation at 16.5%. Practical impact: review your HK holding company's substance annually and keep board-meeting records, employment contracts, and expense evidence.
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