In Hong Kong, dividends received from a company which was chargeable to profits tax are exempt under section 26 of the Inland Revenue Ordinance. As such, in the absence of specific legislation that states otherwise, it follows that non-qualifying dividends would be taxable in Hong Kong if they were sourced in Hong Kong. During the recent Annual Meeting of the Hong Kong Inland Revenue Department (IRD) and the Hong Kong Institute of Certified Public Accountants, the IRD was asked to clarify the general source rule for these dividends which are paid out by companies that were not subject to profits tax in Hong Kong. This article will consider the Hong Kong Inland Revenue Department’s position on the treatment of such dividends and offer a critical analysis and response to the same.