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Tax on Profits from Sale of Property in Hong Kong

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Tax on Profits from Sale of Property in Hong Kong

Hong Kong does not have capital gain tax and under usual circumstances, gains from disposal of property are not subject to tax.

Under Hong Kong tax law, “profits arising from the sale of capital assets” are outside the scope of charge for profits tax. Therefore, if the property sold is a capital asset, the profit arrived from the disposal will not be subject to tax. On the other hand, if the purchase and sale of property was in the nature of trade, the profits will be assessable to profits tax.

In determining whether an asset was acquired as a capital asset or trading stock, the Inland Revenue Department (“IRD”) will look at:
  1. the taxpayer’s intention at the time of the acquisition;
  2. consider whether the taxpayer had engaged an adventure in the nature of trade.

To ascertain the taxpayer’s intention, IRD will examine all the surrounding circumstances to see if the professed intention of the taxpayer is genuinely held. In considering whether there is an adventure in the nature of trade, IRD will see if badges of trade exist, such as frequently engaged in similar transactions; held the asset or commodity for a lengthy period; add re-sale value to the asset by additions or repair; and etc. This indicates an intention to trade or, perhaps, the carrying on a trade. For example, the source of finance should also be taken into account. If money was borrowed in short term, that could be a pointer towards an intention to buy the property with a view to resell in the short term. Then, it is a trade and the profit thereof is subject to tax. The burden of proof is on the taxpayer.

Source:Hong Kong Inland Revenue Department’s website
- https://www.ird.gov.hk/eng/faq/pty_tran.htm
- https://www.ird.gov.hk/eng/ppr/archives/10112402.htm

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