Does Hong Kong tax foreign interest income?

Hong Kong follows a territorial tax system, meaning only income arising in or derived from Hong Kong is generally subject to taxation. As a result, foreign interest income is typically not taxable when it is earned from activities and sources outside Hong Kong. However, the tax position depends on how and where the income is generated, and whether it is connected to business operations carried out within Hong Kong.

Key considerations include:

• Source of the interest: Interest from deposits, loans, or investments located outside Hong Kong is usually treated as foreign-sourced and not subject to Hong Kong profits tax.
• Business operations test: If the activities that produce the interest are conducted in Hong Kong, the income may be considered Hong Kong-sourced, regardless of where the payer is located.
• Financial institutions: Licensed financial institutions in Hong Kong may have additional rules, as interest income can be treated differently based on regulatory requirements and the nature of business.
• Substance and documentation: Companies must maintain clear records showing that the interest arises from activities carried out entirely outside Hong Kong to support their tax position.

Understanding the source of income and maintaining proper documentation ensures accurate compliance when handling foreign interest income under Hong Kong’s tax framework.