Advance Ruling Case No. 77

The provisions of the Ordinance

The ruling applies in respect of section 40AX of and Schedule 17K to the Inland Revenue Ordinance (“IRO”).

Background

(a)

The Applicant is a limited company incorporated overseas and registered as a non-Hong Kong company under Part 16 of the Companies Ordinance. Its principal activity is investment holding. It is not an insurer or a subsidiary of an insurer.

(b)

Company H is a limited company incorporated in Hong Kong. Its principal activity is investment holding. It is the immediate holding company of the Applicant.

(c)

In 2018, the Applicant acquired more than 50% of the equity interest in Company S (“the Equity Interest”), being a non-Hong Kong incorporated company listed on the Hong Kong Stock Exchange (“the Acquisition”). The investment in Company S was made by the Applicant in the form of ordinary shares. The principal activities of Company S and its group are not engaged in property trading, property development or property holding.

(d)

The Applicant has held the Equity Interest as long-term investment since the Acquisition in 2018. The Equity Interest was disclosed as “Investment in Subsidiary” under non-current assets in the Applicant’s financial statements and should not be regarded as trading stock for profits tax purpose.

(e)

Company S classified the Equity Interest as equity in its financial statements under the Hong Kong Financial Reporting Standards. The Equity Interest carries right to the profits, capital or reserve of Company S. The Applicant received dividend income from Company S during the holding period.

The arrangement

In order to streamline the corporate holding structure, it was contemplated that the Applicant would sell the Equity Interest to Company H in 2025. It was expected that the Company would derive a gain on disposal of the Equity Interest (“the Disposal Gain”) in the year of assessment 2025/26.

The ruling

(a)

The Company will satisfy the equity holding conditions specified in section 5(3) of Schedule 17K to the IRO in relation to the Disposal Gain. The exclusions specified in sections 8, 9 and 10 shall have no application to the Disposal Gain and the Equity Interest.

(b)

Section 5(1) of Schedule 17K to the IRO shall operate to regard the Disposal Gain as arising from the sale of capital asset and accordingly, the Disposal Gain is not chargeable to profits tax under section 14 of the IRO.

The period for which the ruling applies

The ruling will apply for the year of assessment 2025/26.

The material assumption in respect of a future event or any other matter made by the Commissioner

The Company will elect in writing that section 5(1) of Schedule 17K to the IRO applies to it.

Date of ruling issued

28 November 2025