Are you currently disputing a Hong Kong tax assessment? The landscape has shifted dramatically with major reforms enacted between 2023 and 2025. Understanding how these changes affect your pending case—especially regarding retroactive application and transitional provisions—could mean the difference between a favorable settlement and unexpected liabilities. Let’s navigate this complex terrain together.

Major Tax Law Changes (2023-2025) and Their Implications

Hong Kong has undergone its most significant tax reforms in decades, driven by international compliance requirements and domestic economic policy. For taxpayers with pending disputes, these changes create both challenges and opportunities that require careful strategic planning.

1. Foreign-Sourced Income Exemption (FSIE) Regime Evolution

Hong Kong’s FSIE regime has evolved through two critical phases, each with distinct implications for pending disputes:

2. Pillar Two Global Minimum Tax Implementation

Hong Kong enacted comprehensive Pillar Two legislation on June 6, 2025, implementing the OECD’s BEPS 2.0 framework with significant retroactive implications:

• Effective Dates: Hong Kong Minimum Top-up Tax (HKMTT) and Income Inclusion Rule (IIR) apply retroactively from January 1, 2025
• Scope: MNE groups with annual consolidated revenue ≥ EUR 750 million in at least two of four preceding fiscal years
• Minimum Rate: 15% effective tax rate requirement
• Compliance Timeline: Top-up tax notification due 6 months after fiscal year end; return due within 15 months (18 months for transition year)

3. Stamp Duty Abolition for Residential Properties

The most significant property tax reform in over a decade occurred on February 28, 2024, when Hong Kong abolished all demand-side management measures:

4. Transfer Pricing Rules Enhancement

Hong Kong’s 2025 transfer pricing updates align with OECD 2022 guidelines, introducing stricter requirements:

• Three-Tiered Documentation: Master File, Local File, and Country-by-Country Report requirements
• Exemption Thresholds: Entities meeting any two conditions (revenue ≤ HK$400M, assets ≤ HK$300M, employees ≤ 100) exempt from Master/Local Files
• Preparation Deadline: Documentation must be prepared within 9 months of accounting year-end
• Enhanced Scrutiny: Expect more rigorous IRD review of functional analysis and profit attribution

How Law Changes Affect Pending Tax Disputes

Hong Kong’s “pay first, argue later” system remains in place, but new legislation creates unique considerations for ongoing disputes:

Hong Kong’s “Pay First, Argue Later” System

Understanding this framework is essential when new laws are enacted during pending cases:

• Payment Obligation: Taxpayers must pay assessed tax by the due date unless the Commissioner grants holdover
• Holdover Applications: The Commissioner may conditionally or unconditionally hold over payment, typically requiring security (tax reserve certificates, banker’s undertaking)
• Interest on Held-Over Tax: If payment is held over and the taxpayer ultimately loses, interest accrues from the original due date until payment

Practical Action Plan for Taxpayers with Pending Disputes

1. Conduct Immediate Impact Assessment: For each pending dispute, analyze whether new legislation affects the assessment years in question, whether retroactive provisions apply, and whether transitional provisions offer more favorable treatment.
2. Review Holdover Applications: Reassess cash flow impact vs. certainty of early settlement, especially considering potential interest costs if liability increases under new rules.
3. Engage with IRD Proactively: Request advance rulings where appropriate, participate in industry consultations, and consider settlement discussions where new law clarifies previously ambiguous positions.
4. Leverage Transitional Provisions: Actively utilize extended filing deadlines for Pillar Two transition years, optional transition provisions for losses and timing differences, and safe harbors.
5. Consider Alternative Dispute Resolution: Utilize Mutual Agreement Procedures (MAP) for cross-border issues, consider Advance Pricing Arrangements (APAs) for certainty, and explore IRD’s mediation program for complex domestic disputes.
6. Maintain Comprehensive Documentation: Update transfer pricing documentation to reflect 2022 OECD guidelines, maintain contemporaneous records of Pillar Two computations, and document FSIE economic substance activities.

Recent Law Changes Summary

The 2023-2025 period represents a watershed moment in Hong Kong tax law, with reforms driven by international compliance obligations and domestic economic policy. For taxpayers with pending disputes, these changes create both challenges and opportunities. The key to successful navigation is proactive analysis: understanding precisely which law applies to which assessment year, whether retroactive provisions affect your case, and how transitional arrangements can be leveraged. Early engagement with professional advisors and, where appropriate, the IRD, can significantly improve outcomes and minimize both tax liability and compliance costs in this evolving environment.