Episode Details

What Is the Nexus Requirement for IP Income in Hong Kong?

Under Hong Kong’s FSIE regime, the nexus requirement limits the amount of foreign-sourced IP income that can qualify for exemption based on the proportion of qualifying R&D expenditure incurred in developing the relevant IP asset.

Qualifying expenditure generally includes R&D activities carried out by:

• The Hong Kong entity itself;
• An associated person; or
• A non-associated person.

The greater the proportion of qualifying R&D expenditure relative to the total expenditure incurred to develop the IP asset, the greater the proportion of IP income that may qualify for exemption.

Key takeaway: The nexus approach links the tax benefit directly to the substantive R&D activity supporting the IP, rather than simply where the IP is legally owned.