Hong Kong: Proposal to clarify non-taxation of onshore gains from disposal of equity interests

Comments on the proposal will be accepted through 22 May 2023.

Comments on the proposal will be accepted through 22 May 2023.

The government on 23 March 2023 launched a consultation on a proposal to clarify the non-taxation of onshore gains from the disposal of equity interests in Hong Kong, which would become effective 1 January 2024. Comments on the proposal will be accepted through 22 May 2023.

The proposal was presented in responses to concerns about the revised foreign-sourced income exemption (FSIE) regime that became effective on 1 January 2023. Under the proposal, a bright-line safe harbor would be introduced for treating certain onshore equity disposal gains as capital in nature and non-taxable, without the need to conduct the “badges of trade” analysis. For investment funds, an additional alternative option for enjoying non-taxation of their onshore equity disposal gains is the tax exemption under the unified fund exemption regime, provided that the specified conditions under the regime are met.

Features of proposal

  • Application of the safe harbor requires that the investor entity has held at least 15% of the total equity interest in the investee entity for a continuous period of at least 24 months ending on the date immediately prior to the date of disposal of such interest.
  • Eligible investor entities include a legal person (other than a natural person) and an arrangement that prepares separate financial accounts such as a partnership and a trust, and can be a Hong Kong or non-Hong Kong resident. Insurers are not, however, eligible investor entities.
  • Eligible equity interests include ordinary shares, preference shares and partnership interests, but not equity interests in certain investee entities engaged in property trading, property development and property holding. 

KPMG observation

The following issues arising from the proposal need to be considered:

  • Whether there will be a “beneficial ownership” requirement and if so, how to assess the beneficial owner status of the equity interests 
  • The interaction between the proposed tax exemption for onshore equity disposal gains and the global minimum tax under BEPS 2.0

For more information, contact a KPMG tax professional:

David Ling | davidxling@kpmg.com



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.