Filing Form BIRS19 for foreign-sourced income in Hong Kong

Form BIRS19: Reporting Foreign-Sourced Income in Hong Kong

The Inland Revenue Department (IRD) requires a Form BIRS19 foreign-sourced income Hong Kong filing when a taxpayer has specified foreign-sourced income potentially subject to profits tax under the foreign-sourced income exemption (FSIE) regime. This filing lets the IRD determine if the income qualifies for exemption or is chargeable to profits tax in Hong Kong.

The FSIE Regime and Its Purpose

Hong Kong taxes on a territorial basis. Under the Inland Revenue Ordinance (Cap. 112), only profits arising in or derived from Hong Kong are chargeable to profits tax. The FSIE regime, introduced in 2023, counters double non-taxation of foreign-sourced income. It deems certain types of foreign-sourced income, interest, dividends, disposal gains, and intellectual property income, received in Hong Kong by a multinational enterprise (MNE) group entity to be derived from Hong Kong. This income is subject to profits tax unless specific economic substance requirements are met.

Form BIRS19 reports this income to the IRD. It accompanies the annual profits tax return (BIR51 or BIR52), supplying the particulars the IRD needs to assess exemption or tax liability.

BIRS19 Form Guide

This BIRS19 form guide details the required information for completion and filing.

Taxpayers must provide: - The assessment year for the income. - A description of each foreign-sourced income category received. - The amount of each category in Hong Kong dollars. - The income’s originating jurisdiction. - Details of Hong Kong economic substance activities supporting an exemption claim. - Whether the income qualifies for the participation exemption for dividends and disposal gains.

The IRD expects an accurate form supported by appropriate documentation, including financial statements and tax computations. An exemption claim must demonstrate the economic substance requirement is met. This means the taxpayer has adequate staff, premises, and expenditure in Hong Kong for the relevant income-generating activities.

Foreign-Sourced Income Taxation

Foreign-sourced income taxation under the FSIE regime covers four income categories: 1. Interest - received by an MNE group entity in Hong Kong. 2. Dividends - received by an MNE group entity in Hong Kong. 3. Disposal gains - from disposing of equity interests, intellectual property, or other assets. 4. Intellectual property income - from using or selling intellectual property.

For each category, the income is deemed Hong Kong-sourced and chargeable to profits tax unless the taxpayer proves one of the following: - The income is not Hong Kong-sourced (the territorial principle applies), and the economic substance requirement is met (for interest, dividends, and disposal gains), or - The nexus approach applies (for intellectual property income).

The IRD uses Form BIRS19 information to verify these conditions. Insufficient evidence may result in a tax assessment.

Hong Kong Form BIRS19

Hong Kong Form BIRS19 is downloadable from the IRD website or completable electronically via the Business Tax Portal. It is part of the supplementary form suite (S1 to S18) accompanying the profits tax return.

Key features: - It files with the relevant assessment year’s profits tax return. - It requires a certified true copy of financial statements and the tax computation. - The taxpayer or an authorised representative must sign it. - Electronic filing is available. From assessment year 2025-26, it is mandatory for in-scope MNE group entities.

Taxpayers must use the current form version. The IRD revises forms periodically. The IRD website provides the latest version and guidance notes.

FSIE Form BIRS19

The FSIE form BIRS19 reports income exclusively within the FSIE regime. It is not required for all foreign-sourced income, only the four specified categories. Income clearly sourced outside Hong Kong and outside these categories is not reportable on this form.

When completing the form, taxpayers should: - Identify the correct assessment year. - Report income in Hong Kong dollars, using the exchange rate at the time of receipt. - Provide a breakdown by jurisdiction. - Attach supporting documents, including the tax computation and financial statements. - If claiming an exemption, provide evidence of economic substance activities.

The IRD may request more information after review. Taxpayers must retain all records for the foreign-sourced income for at least seven years.

Practical Considerations for Taxpayers

Taxpayers receiving foreign-sourced income must review their position to determine if Form BIRS19 is required. Follow these steps:

1. Identify the income categories - Confirm the income is interest, dividends, disposal gains, or intellectual property income.
2. Assess the economic substance - Evaluate if sufficient Hong Kong staff, premises, and expenditure exist to meet the requirement.
3. Prepare supporting documentation - Compile financial statements, tax computations, and evidence of economic substance activities.
4. Complete the form - Fill in all required particulars accurately.
5. File with the profits tax return - Submit Form BIRS19 with the BIR51 or BIR52.

Failure to file when required may lead the IRD to assess the income as taxable without the exemption. Penalties may apply for incorrect or incomplete returns.

The IRD provides guidance on its website and through the Business Tax Portal. Taxpayers with complex situations should seek professional advice from a licensed tax representative.