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August 24, 2023

Hong Kong tax authority updates proposed asset disposal gain regimes

  • Several enhancements have been introduced to the proposed safe harbor rules for onshore equity disposal gains.
  • The revised foreign-sourced income exemption regime on disposal gains may introduce carve-outs for traders and intra-group relief to defer tax charged, subject to certain safeguards.
  • Multinational enterprises will want to assess potential Hong Kong tax implications on asset disposal transactions considering the proposed rules.

Executive summary

In recent stakeholder engagement sessions, the Hong Kong tax authority communicated several updates to previously proposed safe harbor rules for onshore equity disposal gains, in addition to updates that would revise the proposed foreign-sourced income exemption(FSIE) regime regarding disposal gains. The tax reforms are expected to be completed by the end of 2023 for implementation from January 2024.

Detailed discussion

Tax certainty for onshore equity disposal gains

Hong Kong had proposed1 a safe harbor rule in May 2023 under which onshore disposal gains on equity interests will be considered nontaxable capital gains in Hong Kong if at least 15% of the total equity interest in the investee entity has been held for a continuous period of at least 24 months prior to the disposal.

The Hong Kong tax authority now proposes the following updates to the safe harbor rule:

  • The 15% holding percentage threshold will be determined on a group basis; however, trading stock will be excluded.
  • Disposals in tranches are allowed, provided subsequent disposals are made within 24 months after the first disposal.
  • Although the safe harbor rules will not apply to investee entities engaging in property-related businesses, several of the definitions will be relaxed to allow certain exceptions if other conditions are met. However, an investor will not qualify for the safe harbor if the property development undertaken by an investee company has not been completed.
  • When the equity interest changes from trading stock to capital asset, the safe harbor rules will apply if the interest is reflected at market value at the date of change and the conditions are met after the date of change.

Refined FSIE regime

Hong Kong had announced2 that it will further revise its FSIE regime, as requested by the European Union (EU), to extend the scope of foreign-sourced disposal gains beyond shares or equity interest, for which a consultation paper was issued in April.3 Following negotiations with the EU, it is now confirmed that a non-exhaustive list of assets will be incorporated.

The exemptions for regulated financial entities and taxpayers benefitting from preferential regimes will remain available. The proposed carve-out for disposal gains of traders and intra-group relief outlined in the consultation paper will be introduced, subject to the EU's formal agreement. However, the intra-group relief will have safeguards requiring that (i) the Hong Kong profits tax should be chargeable to both the transferor and transferee for six years and (ii) the parties must remain associated with one another for two years after the transfer. Meanwhile, the EU rejected a proposed rebasing arrangement, transitional taper relief and reduced tax rate for pre-commencement gains.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

Ernst & Young LLP (United States), Hong Kong Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor



1 See EY Global Tax Alert, Hong Kong proposes safe harbor rules for onshore equity disposal gain, dated 1 May 2023.

2 See EY Global Tax Alert, Hong Kong to further revise its foreign source income exemption regime to expand scope of disposal gain, dated 20 February 2023.

3 See EY Global Tax Alert, Hong Kong launches consultation to revise foreign-sourced disposal gain rule, dated 9 May 2023.