HomeNews & InsightsBlogsHong Kong Enhances Tax Clarity with 2023 Amendment Bill

Hong Kong Enhances Tax Clarity with 2023 Amendment Bill

December 25, 2023, saw the official publication of the Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 in the Hong Kong Gazette.

In this post, we will summarize the Bill, its main points, and the requirements for qualifying in Hong Kong.

Synopsis of the Bill

The Tax Certainty Enhancement Scheme for Onshore Disposal Gains, or “the Scheme,” is put into force by the Bill in Hong Kong.

Onshore disposal gains made by qualified investor companies in Hong Kong that satisfy specific requirements may be considered capital under certain Scheme provisions and not subject to Hong Kong taxation.

The Scheme’s Scope

For Onshore Disposal Gains associated with disposals in Hong Kong that take place on or after January 1, 2024, the TCES is applicable. Gains made throughout the base period beginning on or after April 1, 2023, in Hong Kong are also covered.

Engagement with the Programme

Depending on their choices or if they don’t meet the requirements, taxpayers in Hong Kong can choose to use the TCES or go with the conventional “badges of trade” method.

Qualifications for the Programme

Investor entities must fulfil all of the requirements listed below to be eligible for the TCES and have onshore disposal gains considered as “capital in nature” and exempt from taxation:

The investor entity must be a company with separate financial accounts, such as partnerships, trusts, funds, or a legal body (not an individual). The gains from the onshore disposal must come from transactions on or after January 1, 2024, or they must be realised within the assessment year’s base period beginning on or after April 1, 2023. Before the disposal date (the reference period), the investor entity had to have sustained a minimum of 15% equity stake in the investee firm, often known as the “15% ownership threshold,” for 24 months.

To satisfy the 15% criteria, the law also proposes flexible options, such as permitting the investor entity and its closely linked corporations to aggregate their equity interests. It also allows the sale of equity shares in several tranches.

For more detailed information, please visit the IRD website to access the Notification and the Tax Certainty Enhancement Scheme.

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