DIPN 21 for Financial Institutions ▸ Loan interest income Depends on two factors only: (1) Initiation; and (2) Funding Initiation Efforts in obtain the business including solicitation, negotiation and structuring of loans ⚫ If wish to claim offshore, HK FI must prove the participation of the loan is the direct result of the activities done by an associate party outside HK Funding Provision of the money for the loan If wish to claim offshore, (1) HK FI must prove it has no authority to fund the loan; and (2) documentary evidence showing the fund is provided by an offshore associate directly DIPN 21 for Financial Institutions ▸ Loan interest income 。 Tax treatment on interest income from offshore loans: Initiation Outside HK Funding Outside HK Hong Kong Hong Kong Tax treatment 100% non-taxable 100% taxable Outside HK Hong Kong 50% taxable Hong Kong Outside HK 50% taxable 。 Tax treatment on interest income from onshore loans Fully taxable Exemption Order is NOT applicable 83 84