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Hong Kong removed from EU ‘grey list’ – Back in Business?

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On 20 February 2024, the EU published an update of its list of non-cooperative tax jurisdictions. Hong Kong has been removed from the EU’s tax cooperation watchlist, commonly referred to as the ‘grey list’, and is now back on the ‘white list’.

These last few years, Hong Kong has made substantial efforts in addressing the EU’s concerns and strengthening its tax cooperation mechanisms to align with global tax norms. This shows they are committed to making sure that their Foreign-Sourced Income Exemption (FSIE) regime fully conforms to international tax standards.


In 2021 already, the EU included Hong Kong in its tax cooperation watchlist due to concerns about potential double non-taxation stemming from certain FSIE not being taxed in Hong Kong. We addressed this in a news item a few years ago.

As a result, the HKSAR Government responded by introducing a new FSIE regime in January 2023. This ‘FSIE 1.0 regime’ complied with the guidance on FSIE regimes originally published by the EU in 2019.

Under this regime, multinational companies must meet economic substance requirements to qualify for tax exemption on foreign-sourced dividends, interest, income from intellectual property use, and disposal gains related to shares or equity interests in Hong Kong. The introduction of the FSIE regime shows Hong Kong’s concerns over tax fairness and their aim to align with global tax standards, particularly those advocated by the EU and OECD.

In December 2022, the EU released an updated guidance on FSIE regimes, explicitly requiring such regimes to cover gains from the disposal of all types of assets. Jurisdictions undergoing FSIE reforms, including Hong Kong, remained on the watchlist until the necessary legislative amendments were finalized.

Responding to EU Concerns

On 1 January 2024, Hong Kong implemented further amendments to its FSIE regime, expanding the scope of assets pertaining to foreign-sourced disposal gains beyond shares or equity interests (‘FSIE 2.0 regime’). The scope of covered income has been expanded to cover foreign-sourced gains from the disposal of all types of assets (i.e. movable property and immovable property), regardless of whether they are capital or revenue in nature and whether the assets are financial or non-financial in nature.

Following the implementation of these adjustments, the EU conducted an evaluation and confirmed that Hong Kong has fulfilled its commitment by modifying its tax framework.

Back in Business

While the EU’s removal of Hong Kong from the watchlist is a positive step, several challenges remain. Hong Kong must navigate a diverse landscape to maintain its status as financial and business hub. Concerns regarding political freedom and independence from mainland China persist. Transparently and effectively addressing these concerns will be crucial in rebuilding international confidence and fostering the business environment.

Recent developments also suggest that Hong Kong is moving towards a more crypto-friendly regulatory environment, with a clear focus on ensuring investor protection and financial stability. It aims to position itself as a leading global hub for cryptocurrency and blockchain technology.

Since 2003, the Double Taxation Agreement between Belgium and Hong Kong has facilitated numerous business transactions in both directions. Hong Kong’s reputation for its straightforward and low-tax system has positioned it as one of the most business-friendly jurisdictions globally. Hong Kong remains an interesting and strategically important business location, particularly for companies looking to leverage its unique position as a connector between East and West.