M&A Tax Advisory Hong Kong

No. HK does not have a capital gains tax. However, if the disposal is part of a trading activity (i.e., the business of buying and selling companies), gains may be taxable as trading profits. The distinction between capital and revenue gains is fact-specific and we assess this risk carefully for each transaction.

A scheme of arrangement is a court-sanctioned process under the Companies Ordinance allowing a company to merge with another by transferring all assets and liabilities in exchange for shares in the acquiring company. It requires 75% shareholder approval and court sanction, but can effect a true statutory merger without triggering individual asset-by-asset stamp duty.

Yes. Even if no cash changes hands, stamp duty applies to share-for-share exchanges at 0.2% of the higher of consideration or market value of shares transferred. There is no blanket relief for share swaps in HK, unlike in some other jurisdictions.

Under s.19C IRO, a company's tax losses can only be carried forward if it continues to carry on the same trade or business after a change of ownership. If the acquiring company changes the business materially, pre-acquisition losses are forfeited. We assess this risk as part of deal due diligence.

Earnout payments received by the seller are generally treated as additional capital consideration (not taxable in HK assuming capital disposal). However, if earnout is tied to the seller's continued employment, IRD may argue it is employment income (taxable). Careful earnout drafting is essential.

Generally no. Advisory fees and stamp duty incurred on capital acquisitions are capital expenditure and not deductible under s.17 IRO. However, fees for ongoing financing arrangements and post-acquisition refinancing may be deductible depending on the nature of the underlying borrowing.