The Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 will be published in the Gazette on October 20 and introduced in the Legislative Council on November 1.
The bill seeks to provide greater certainty of non-taxation of onshore gains on disposal of equity interests that are of a capital nature. A tax-certainty enhancement scheme will give holders assurance of non-taxation on their gains, provided they meet certain criteria.
Specifically, gains will be treated as capital and not chargeable to profits tax if the investor entity concerned has held certain equity interests in the investee entity for 24 consecutive months immediately before the date of disposal and these interests amount to at least 15% of total equity interests in the investee entity.
The scheme excludes certain gains which are not normally considered as capital in nature and gains arising in circumstances where the risk of abuse is relatively high, so as to strike a balance between facilitating businesses and upholding the integrity of the tax system.
Where gains are not eligible for the scheme or taxpayers do not elect to use the scheme, the Inland Revenue Department will continue to use the “badges of trade” approach to determine the appropriate tax treatment.
Stressing that Hong Kong is renowned for its simple and competitive tax system, which does not tax gains on disposal of equity interests of a capital nature, the Government said the scheme will further enhance the competitiveness of the city’s tax regime through greater upfront certainty of non-taxation of gains.
It added that the scheme will be more competitive than similar schemes in other tax jurisdictions as it involves wider coverage of businesses and equity interests, a lower threshold for equity holdings, and more flexible arrangements such as allowing the minimum holding percentage of 15% to be met on a corporate group basis.
The scheme will be applicable to gains accrued in an assessment year beginning on or after April 1, 2023, and where disposal occurs on or after January 1, 2024.
