No Capital Gain Tax in Hong Kong

Hong Kong does not impose any capital gain tax ("CGT") on individuals, making it one of the most favourite destinations for investors and high net-worth individuals.

Capital Gain is not a chargeable income in Salaries Tax

According to section 8(1) of the Inland Revenue Ordinance ("IRO"), Salaries Tax is only chargeable on the income of the taxpayers arising in or derived from Hong Kong from office, employment, and pension. Except that capital gain arises from office, employment, and pension (ie. share options received from the employer are exercised and disposed of), the capital gain is not subject to any Salaries Tax.

Section 8(1) of IRO: Salaries tax shall, subject to the provisions of this Ordinance, be charged for each year of assessment on every person in respect of his income arising in or derived from Hong Kong from the following sources—(a) any office or employment of profit; and (b) any pension.

Chargeable income in Profits Tax excludes capital gain

According to section 14(1) of IRO, Chargeable income under Profits Tax explicitly excludes profits arising from the sale of capital assets (ie. capital gain).

Section 14(1) of IRO: Subject to the provisions of this Ordinance, profits tax shall be charged for each year of assessment on every person carrying on a trade, profession or business in Hong Kong in respect of his assessable profits arising in or derived from Hong Kong for that year from such trade, profession or business (excluding profits arising from the sale of capital assets) as ascertained in accordance with this Part.

However, not all investment assets are capital assets under IRO. If such assets constitute a nature of trade, the "capital" gain is subject to Profits Tax. For example, an individual who repeatedly buys and sells properties in Hong Kong in a short period may be subject to Profits Tax. Unfortunately, IRO does not define what capital assets are, such a definition is built and refined by tax cases as Hong Kong is a common law jurisdiction. In common practice, a person buying and selling listed shares in Hong Kong and overseas does not constitute a nature of trade and not subject to any Profit Tax in Hong Kong. Please consult a Hong Kong tax expert if needed.

Please also note that, after 1 January 2023, Hong Kong implemented a foreign-sourced income exemption ("FSIE") regime after the European Union put the city into the grey list of the non-corporative tax jurisdiction. Therefore, offshore capital gains earned by entities in scope may be subject to Profits Tax. Fortunately, Individuals are excluded from the FSIE regime.