For decades, Hong Kong’s tax system—characterized by its low, simple rates and territorial principle—has been a cornerstone of its competitive edge. But is the era of pure simplicity coming to an end? The city is now navigating a deliberate and complex recalibration, driven by global tax reforms and local economic strategy. The changes are not random; they are a strategic pivot to align with international standards while safeguarding Hong Kong’s appeal. For businesses and investors, understanding this new landscape is no longer optional—it’s critical for compliance and strategic planning.

The Confirmed Changes: Strategic Alignment in Action

1. The Expanded Foreign-Sourced Income Exemption (FSIE) Regime

Implemented in phases (January 2023 and expanded in January 2024), Hong Kong’s FSIE regime has undergone its most significant transformation. The core territorial principle remains, but the path to exemption is now paved with stricter conditions. The regime now covers four types of foreign-sourced income: dividends, interest, disposal gains from equity interests, and intellectual property (IP) income.

2. Enactment of the Global Minimum Tax (Pillar Two)

In a landmark move, Hong Kong enacted legislation for the OECD’s Global Anti-Base Erosion (GloBE) Rules, commonly known as Pillar Two, on June 6, 2025, with effect from January 1, 2025. This is not a rumor—it is law. The rules impose a 15% global minimum effective tax rate on large multinational enterprise (MNE) groups with consolidated annual revenue of EUR 750 million or more.

Hong Kong’s implementation includes two key rules: the Income Inclusion Rule (IIR), which taxes the parent entity on the low-taxed income of its subsidiaries, and the Hong Kong Minimum Top-up Tax (HKMTT). The HKMTT is crucial—it ensures that if a multinational group’s operations in Hong Kong are subject to an effective tax rate below 15%, the top-up tax is collected by Hong Kong itself, rather than ceding that revenue to another jurisdiction.

3. Abolition of “Cooling Measures” Stamp Duties

In a significant boost for the property market, the Hong Kong government abolished three key stamp duty “cooling measures” effective February 28, 2024. This is a confirmed and impactful change:

• Special Stamp Duty (SSD): ABOLISHED. Previously taxed early resale of properties.
• Buyer’s Stamp Duty (BSD): ABOLISHED. Previously an additional 15% duty on non-permanent resident and corporate buyers.
• New Residential Stamp Duty (NRSD): ABOLISHED. Previously a flat 15% duty on all secondary residential purchases.

Property transactions are now subject only to the standard Ad Valorem Stamp Duty at progressive rates, ranging from HK$100 on properties up to HK$3 million, to 4.25% on properties over HK$21,739,120.

Strategic Implications and Actionable Steps

The cumulative effect of these changes requires a proactive, rather than reactive, approach from businesses operating in or through Hong Kong.

Move 1: Conduct a Substance and Entity Purpose Review

Map every Hong Kong entity’s functions, employees, assets, and risks. Passive holding companies, treasury centers, and IP holding vehicles are under the microscope. For each, ask: Do we have adequate substance here to support the income streams we receive? Documenting this is the first line of defense under the FSIE regime.

Move 2: Initiate Pillar Two Readiness Assessments

If your multinational group meets the EUR 750 million revenue threshold, you must begin calculating your GloBE effective tax rate by jurisdiction. This is a complex, data-intensive process that goes far beyond local tax compliance. Assess the potential top-up tax liability for your Hong Kong operations and prepare for new compliance filings.

Move 3: Re-evaluate Holding and Financing Structures

The combination of FSIE and Pillar Two may necessitate restructuring. For instance, the 0% tax rate available under Hong Kong’s new Family Investment Holding Vehicle (FIHV) regime (for vehicles with at least HK$240 million in AUM and substantial local activities) could be a powerful tool for eligible families, but it requires careful planning and substance creation.

Hong Kong’s tax system is evolving from a model of pure simplicity to one of strategic sophistication. The changes are deliberate, aligning the city with global standards while creating new niches like the FIHV regime. For agile businesses, this evolution presents not just a compliance challenge, but an opportunity to build more resilient, substantiated, and strategically sound operations in Asia’s world city.