Enhancing Tax Certainty of Onshore Gains on Disposal of Equity Interests
On 6 December 2023, the Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interest) Bill 2023 (“the Bill”) was passed by the Legislative Council. The Bill gives effect to the Tax Certainty Enhancement Scheme (“the Enhancement Scheme”) which aims to provide greater certainty of non-taxation for onshore gains on the disposal of equity interests ("Onshore Disposal Gains"). Subject to the equity holding conditions and anti-abuse exclusions under the Enhancement Scheme, Onshore Disposal Gains from eligible equity interests in an eligible investee entity that are accrued to an eligible investor entity would be regarded as capital in nature and not chargeable to Hong Kong Profits Tax, without the need to carry out any “badges of trade” analysis. However, if a taxpayer does not elect for the Enhancement Scheme or fails to meet all the eligibility criteria, the status quo will apply, i.e. the Onshore Disposal Gains will be examined by the IRD using the “badges of trade” approach as they are at present.
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