The Inland Revenue Ordinance ("IRO") ruling for a Hong Kong-based company regarding the sale of equity interest in a listed non-Hong Kong subsidiary is explained. The ruling clarifies the tax treatment of the gain from the sale, which is regarded as a capital asset and hence not chargeable to profits tax.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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On 05 Mar 2026, the ruling applies to sections 40AX and Schedule 17K of the Inland Revenue Ordinance ("IRO") concerning the transfer of equity interest by a limited company (Applicant) in a subsidiary company (Company S).
The Applicant, a non-Hong Kong overseas corporation, primarily engages in investment holding. It holds more than 50% of Company S's equity interest, acquired in 2018 and held as a long-term investment. The Equity Interest is classified as equity in Company S's financial statements.
Company H, a Hong Kong-based limited company, intends to acquire the Equity Interest from the Applicant in 2025, expecting to realize a gain in the 2025/26 assessment year.
The ruling specifies that the conditions in section 5(3) of Schedule 17K are satisfied, excluding the applicability of sections 8, 9, and 10. The Disposal Gain is deemed to arise from the sale of a capital asset, therefore not subject to profits tax under section 14 of the IRO.
The ruling is applicable for the 2025/26 assessment year and requires Company H to make an election in writing that section 5(1) of Schedule 17K applies to it.
The ruling was issued on 28 November 2025.
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