HONG KONG SAR, CHINA Law and Practice Contributed by: Jeffrey Lee, Jessica Leung and Hilary Leung, Charles Russell Speechlys
Regimes ). There is no withholding tax, capital gains tax or estates tax in Hong Kong. There is no cost base adjustment on a transfer of property. Hong Kong adopts a territorial scope of taxation. Sub - ject to the applicability of the foreign source income taxation regime (further discussed in 1.6 Transpar- ency and Increased Global Reporting ) and double tax treaties, income derived outside Hong Kong is generally not chargeable to Hong Kong tax. 1.4 Taxation of Real Estate Owned by Non- Residents Since the abolition of the buyer’s stamp duty in 2024, no additional stamp duty is chargeable to non-Hong Kong permanent residents acquiring Hong Kong property. See 1.1 Tax Regimes under Stamp Duty . 1.5 Stability of Tax Laws Tax laws in Hong Kong are generally relatively stable. The most notable recent change was the introduction of the special stamp duty and the buyer’s stamp duty in the last decade, and the abolition thereof in 2024. These measures were initially introduced to curb speculative activities in relation to residential property and to reduce the risks of a property bubble, as the private residential property market has been volatile. As the residential property market began to decline in recent years, these measures were abolished with effect from 28 February 2024. 1.6 Transparency and Increased Global Reporting General Anti-Avoidance Rules There are general anti-avoidance provisions in the Inland Revenue Ordinance to tackle abuses of the tax laws. Where the Inland Revenue Department (IRD) is of the opinion that any transaction that reduces or would reduce the amount of tax payable by any person is artificial or fictitious, or that any disposition is not in fact given effect to, it may disregard any such transac - tion or disposition, and the person concerned shall be assessable accordingly. The term “transaction” includes the whole of any particular transaction, and not merely part of it. The
transaction as a whole may be held as both artificial and fictitious even though part of the transaction may have a genuine intent. The IRD would take all circum - stances into consideration when forming an opinion as to whether a transaction as a whole is artificial or fictitious. Where a person enters into or carries out a transac - tion for the sole or dominant purpose of obtaining a tax benefit, the IRD has the statutory power to disre - gard or reconstruct said transaction and assess the tax liability accordingly. The term “tax benefit” means the avoidance or postponement of the liability to pay tax or the reduction in the amount thereof. Where a tax avoidance arrangement has been made to take advantage of a specific relief or exemption in such a way that is not intended by the legislature, the above general anti-avoidance rules can be applied to deny the favourable tax consequences even if the tax - payer has, on the face of it, complied with the require - ments of the relevant relief or exemption. Set-Off Companies that have sustained a loss in any trade, profession or business are permitted to carry forward the amount of that loss for set-off against profits in subsequent years of assessment. An unintended effect is that profitable companies are tempted to buy companies with accumulated tax losses and transfer their profitable businesses into the loss company once their ownership has been acquired, so that the losses brought forward can be set off against the profits. To tackle this avoidance practice, the Commissioner of the IRD may refuse to set off losses brought forward where they are satisfied that the sole or dominant pur - pose of a change in shareholding was the utilisation of those losses to obtain a tax benefit. Tax Reporting Hong Kong has implemented automatic exchange of financial account information (AEOI) and common reporting standards. Under the AEOI standard, financial institutions are required to identify financial accounts held by tax residents of reportable jurisdictions or held by pas - sive non-financial entities whose controlling persons
227 CHAMBERS.COM
Powered by FlippingBook