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20231212 An update from the IRD on the practical interpretation and application of (i) Hong Kong’s refined Foreign-sourced Income Exemption regime and (ii) the Tax Certainty Enhancement Scheme for onshore disposal gain of equity interests
The Inland Revenue (Amendment) (Taxation on Foreign-sourced Disposal Gains) Bill 2023 was gazetted on 13 October 2023 to refine the existing foreign-sourced income exemption (FSIE) regime in Hong Kong which has taken effect from 1 January 2023. Under the refined FSIE regime, the scope of assets in relation to foreign-sourced disposal gains will be expanded to cover all types of property. The existing exception requirements, i.e. economic substance requirement, participation requirement and nexus requirement, will remain unchanged and applicable to the relevant types of disposal gains. To ease the compliance burden of covered taxpayers, non-IP disposal gains which are derived from, or are incidental to, the carrying on of a business as a trader will fall outside the scope of the FSIE regime. A new intra-group relief will also be introduced to defer charging of tax if the property concerned is transferred between associated entities, subject to specific anti-abuse rules.
The Inland Revenue (Amendment) (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023 was gazetted on 20 October 2023 to introduce a tax certainty enhancement scheme (the Scheme) to provide greater certainty on the taxability of onshore gains on disposal of equity interests (the Gains). The Scheme applies to the Gains where the disposal occurs on or after 1 January 2024 and the Gains accrue in the basis period for a year of assessment commencing on or after 1 April 2023. The Gains that meet the specified conditions are to be regarded as capital in nature and not chargeable to profits tax. The nature of onshore disposal loss of equity interests will continue to be determined based on the “badges of trade” analysis.
In this seminar, the IRD speaker will:
- Provide a quick recap of the key features of the refined FSIE regime and the Scheme;
- Discuss and clarify various issues on the interpretation and application of the rules under the refined FSIE regime and the Scheme; and
- Discuss the technical support provided by the IRD to taxpayers to facilitate compliance.