In Hong Kong, gains which are of revenue in nature derived from trade, profession or business are taxable under Profits Tax. In other words, gains which are of capital in nature are exempt from tax in Hong Kong. Capital gains generally refer to disposal of all assets, such as shares, bonds, property, crypto or other forms of investments. As such, understanding and applying relevant tax regulations of capital gains are crucial for investors to optimize their tax burdens.

However, it is not always easy to categorize whether an asset is a capital one and the taxpayers have to resort to complicated case laws and principles (for example, badges of trade test). Meanwhile, the IRD will look closely to every single fact of each case before making a determination of the nature of the asset.

Disposal of the following assets could claim tax exemption on capital gains:-

- Property

- Crypto

- Shares

- Bonds

- Other forms of investments

Six Badges of Trade Test

The test lists out six important factors, though not conclusive, that would be relied on when determining whether the disposal / sales transaction is a trading transaction.

- Subject matter of disposal

- Holding period

- Frequency of similar transactions

- Supplementary work done

- Profits seeking motive

- Circumstances for disposal

Tax Certainty Enhancement Scheme (Effective from 1 January 2024)

The HK Government is helpful in making things a little bit easier, by introducing a Tax Certainty Scheme on Onshore Gain on Disposal of Equity Interests. The Scheme only targets disposal of equity interests and is effective from 1 January 2024. While the Scheme indeed provides some assurances on how shares could be regarded as capital asset, the Scheme is not that straightforward as you think!

Under Tax Certainty Enhancement Scheme, two of the most important requirements is as follows:-

- Equity investment of 15% or above

- At least 24 months of holding period

Being one of the most vibrant international financial centres in the world, Hong Kong is famous for attracting investors from all over the world. If the investors could make use of Capital Gain Claim wisely, their investment costs could be greatly reduced and hence a higher return on investment could be achieved.

Foreign Sourced Income Exemption (FSIE) Impact on Capital Gains

Under FSIE Regime, Capital gains is no longer 100% tax exempt in Hong Kong. Please refer to our Article for the significant impact of FSIE on capital gains and other income.

How Our Services Can Help

We provide professional Capital Gains Claim planning services to help clients identify and optimize their investment structure, ensuring that their investment activities comply with the tax requirements for long-term capital gains. Our services include investment strategy advice, tax risk assessment, and tax filing representation, aiming to help clients achieve tax optimization while ensuring compliance of their investment activities.

Through professional Capital Gains Claim planning, investors can maximize their investment returns and reduce tax burden while adhering to tax regulations.

Reference: 

https://www.ird.gov.hk/eng/faq/pty_tran.htm

https://www.ird.gov.hk/eng/tax/bus_taxcertainty.htm#a01