Definition of Capital Gains
In Hong Kong, capital gains are defined as profits arising from the disposal of chargeable assets. Chargeable assets include:
- Real estate properties
- Stocks and shares
- Bonds and debentures
- Business assets
Calculation of Taxable Capital Gains
Taxable capital gains are calculated as the difference between the selling price of the asset and its acquisition cost. The formula for calculating capital gains is:
Capital Gain = Selling Price - Acquisition Cost - Expenses
Adjustments or deductions may be allowed in the calculation of the gain, including expenses related to the sale (e.g., brokerage fees, legal fees) and any improvements made to the asset during ownership.
Tax Rates
Capital gains tax in Hong Kong is levied at a flat rate of 15%. However, certain exemptions or preferential tax treatment may apply under specific provisions of the Inland Revenue Ordinance (IRO).
Legal Framework
The taxation of capital gains in Hong Kong is governed by the Inland Revenue Ordinance (IRO), particularly:
- Section 14(1) of the IRO defines chargeable gains as profits arising from the disposal of chargeable assets.
- Section 15 of the IRO outlines the methodology for calculating taxable capital gains.
- Section 16 of the IRO specifies the tax rates applicable to capital gains.
Policy Objectives
The capital gains tax system in Hong Kong aims to:
- Ensure that individuals and businesses contribute their fair share of tax on profits realized from investments and asset disposals.
- Maintain a neutral tax treatment across different sources of income.
- Promote investment and economic growth.
