INDUSTRY INSIGHT: LEGAL
5 bills businesses should know in 2024 One of the measures will exempt onshore disposal gains from profits tax. ECONOMY | by Noreen Jazul
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ong Kong Business has curated a list of critical measures which are likely to impact business and investors alike in 2024, particularly those in the financial regulation and investment management space, as well as the F&B and hospitality industries. First on the list is the “Inland Revenue (Disposal Gain by Holder of Qualifying Equity Interests) Bill 2023,” an amendment which exempts onshore disposal gains from profit taxes under three conditions. Pan Tsang, a partner at Robertsons, said the bill is important for companies in Hong Kong that are undergoing expansions and restructuring since acquisitions and disposal of equity interests are a crucial aspect of these strategic moves. “These businesses should carefully consider whether the three specified conditions set out under the bill can be fulfilled, and thus whether they can benefit from the non-taxation treatment under the scheme,” Tsang told Hong Kong Business. The Inland Revenue Bill The measure provides that disposal gains shall be exempted from profit tax automatically under the following conditions: if the investor’s entity is an eligible entity; if the subject matter disposed of is an eligible equity interest in an eligible investee entity; and if equity holding conditions are met, or the exception to equity holding conditions for long-held leftovers is satisfied. Eligible entities are either a legal person, a partnership, trust or a fund, with the exception of insurers. Explaining the second condition, Tsang said “equity interest in an eligible investee entity” refers to “an interest that carries rights to profits, capital or reserves of the investee entity, and is accounted for as equity in the books of the investee entity under applicable accounting principles.” “It does not apply to equity interests that are regarded as trading stock for tax purposes 32
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and to certain non-listed equity interests in property-related entities which engage in property trading, property development or property holding,” Tsang said. Equity holding conditions set by the bill include the investor entity holding at least 15% of the equity interests in the investee entity for 24 consecutive months before the date of disposal of the interest. “The scheme will also apply if the investor disposes of the equity interests in tranches in a way in which the investor’s equity holding will fall below 15% after earlier tranche or tranches, so long as the subsequent disposal is made within 24 months from the latest earlier disposal for which the investor meets the 15% equity interest requirement,” Tsang said. “For example, an investor entity owns 30% equity interest in an investee entity as of July 2023. This investor entity proposes to dispose of its equity interests in two tranches, say 18% in August 2023 and 12% August 2024. In this regard, despite falling out of the 15% equity interest requirement, the second disposal
gain dated August 2024 would still be exempted from profits tax,” he added. Type 13 Regulated Activity Still on the financial regulation and investment management space, another bill that business should take note of is the introduction of the Type 13 Regulated Activity (RA13) to the Securities and Futures Ordinance, its subsidiary legislation and various SFC codes and guidelines. Katherine Liu, head of fintech and financial services at Stephenson Harwood, said the bill is anticipated to take effect on 2 October 2024. Under RA13, depositaries or top-level trustees and custodians of collective investment scheme (CIS) authorised by the Securities and Futures Commission (SFC) will be required to get a licence or be registered with the statutory body, unless exempted. “A depositary’s delegates will be exempted, as will any registered mandatory provident fund scheme or a constituent fund or any approved pooled investment fund offered to professional investors,” Liu explained.