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November 1, 2023

Hong Kong introduces bills on asset disposal gain regimes

  • Two bills were gazetted to further revise Hong Kong's refined foreign-sourced income exemption regime covering asset disposal gains as well as to introduce safe harbor rules for onshore equity disposal gains.
  • The bills are in line with previously introduced proposals but further relax certain requirements and clarify certain provisions.
  • Multinational enterprises will want to review their Hong Kong asset profile to assess potential tax implications.

Executive summary

Two bills were gazetted to move forward implementation of previously announced additional revisions of a foreign-sourced income exemption (FSIE) regime regarding asset disposal gains and safe harbor rules for onshore equity disposal gains. The bills are expected to be enacted by the end of 2023 and come into effect, generally, starting from 1 January 2024.

Detailed discussion

Refined FSIE regime

As requested by the European Union, Hong Kong had announced1 that it will further revise its FSIE regime to extend the scope of foreign-sourced disposal gains to cover a non-exhaustive list of assets. A consultation paper was issued in April2 and the legislative bill was published on 13 October 2023. The new rules will apply to disposal gains accrued and received starting from 1 January 2024.

During its previous engagement sessions with the stakeholders,3 the government referred to most features of the revised regime, which have now been updated as follows:

  • Disposal gains of traders will be excluded from the scope of the FSIE regime without requiring the trader to have substantial business activities in Hong Kong.
  • Intra-group transfer relief is available to defer tax charged if prescribed conditions are satisfied. The safeguard requirement is relaxed, whereby the selling and acquiring entities are only required to be within the "charge to profits tax" in Hong Kong for two years (instead of six years).
  • Where intra-group transfer relief has been granted for gain on an intellectual property (IP) disposal and the acquiring entity subsequently sells the acquired IP asset, the extent of tax exemption for the subsequent offshore disposal gain will also be determined by the nexus ratio. For this purpose, the previous expenditures incurred by the selling entity will be included as qualifying and non-qualifying expenditures of the acquiring entity.

Tax-certainty enhancement scheme for onshore equity disposal gains

Hong Kong had proposed4 safe harbor rules in May 2023 under which onshore disposal gains on equity interests would be considered nontaxable capital gains in Hong Kong if at least 15% of the total equity interest in the investee entity was held for a continuous period of at least 24 months prior to the disposal.

The related legislative bill was published on 20 October 2023 and the rules are in line with previous proposals. The bill and the related guidance published by the tax authority clarify certain definitions for determining the equity holding conditions and the circumstances in which the safe harbor rules will not apply, such as where an equity interest is classified as "trading stock" or an investee entity is engaged in property-trading business.

The safe harbor rules will apply for eligible equity disposal gains that occur on or after 1 January 2024 and are accrued starting from the year of assessment 2023/2024 (e.g., year beginning on or after 1 April 2023). An eligible investor entity may make an election in the annual profit tax return after the transaction.


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 to further revise its foreign source income exemption regime to expand scope of disposal gain, dated 20 February 2023.

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

3 See EY Global Tax Alert, Hong Kong tax authority updates proposed asset disposal gain regimes, dated 24 August 2023.

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