Hong Kong was added to the European Union’s “grey list” of non-cooperative tax jurisdictions this month. In response, the government has swiftly promised to amend the city’s tax law and implement new regulations to help the EU combat tax evasion. After consulting stakeholders, local officials say the legal changes could be made as soon as 2023. Not only has the government done the right thing, it has moved with unusual speed. The changes will primarily target companies rather than individuals. The city is home to many foreign companies, both small and large, with some operating their regional offices or headquarters here. The government must therefore provide clarity and transparency in any changes it plans to make. This is not only to remove unknowns and uncertainties for the business community, but also to maintain the city’s simple taxation system, one of the key pillars that sustain Hong Kong as a global financial hub. Hong Kong has bilateral agreements with many major economies to avoid double taxation. But EU officials have complained that some European firms have set up offshore units in the city to avoid paying taxes. The government has long understood, and rightly argued, that it’s in the city’s own interest to have only foreign companies claiming non-taxation in Europe and elsewhere only if they have business activities here, rather than shell companies for tax avoidance. Firms may need to review structures after Hong Kong says it will amend tax law Since the publication of the Panama Papers in 2016 exposing how some of the world’s richest and most powerful people hide their wealth and avoid paying taxes, tax avoidance has become a hot-button issue. The release of the Pandora Papers this month adds new impetus to the global campaign to crack down on tax avoidance. The proposed legislative amendments will not affect individuals, but target primarily European companies with no substantial economic activity in Hong Kong other than passive income such as royalties and interest payments. Once the government has made the legislative changes, it expects Brussels to remove the city from its grey list. Hong Kong is not a tax haven; that’s why the latest government move is necessary. But it must also maintain its global financial standing with a simple and efficient tax system.