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5.2. Treatment of Foreign Profits / Losses

Foreign profits and losses are not taxable in Hong Kong due to the applicable territorial system.

When foreign exchange (FOREX) gains or losses arise out of keeping accounts in a foreign currency and/or incurring liabilities in, and earning income in foreign currency in the course of carrying on trade or business, they are assessable or deductible, if they are revenue in nature. If the FOREX gains or losses are capital in nature, they will not be assessable or deductible.

In the past, unrealized FOREX gains or losses could be excluded and adjustments to profits made when they are realized. But, since 2006 the Inland Revenue Department no longer accepts exclusion of FOREX gains and losses based on being unrealized.