No Capital Gains Tax in GMC? Section 13W, Share Disposals and the Treatment of Gains

Summary

• The Income Tax Act 2025 contains no separate charge on capital gains. Section 10(1) charges income from trade, employment, dividends, interest, rents and "any gains or profits of an income nature" (s. 10(1)(g)); gains of a capital nature are outside that charge.
• Whether a gain is trading or capital is a question of fact; s. 10J treats trading stock appropriated to capital use as sold at market value.
• Section 13W exempts a company's gains from disposing of ordinary shares (and, from 1 January 2026, preference shares) where it has legally and beneficially held at least 20% for a continuous 24 months before the disposal, subject to exclusions for insurers, unlisted property companies and partnerships with corporate partners (s. 13W(8)).
• Section 10L taxes certain foreign-asset gains received in GMC by entities in multinational groups, subject to exclusions for entities with adequate economic substance in GMC.
• Dividends paid by a company resident in GMC are exempt in the recipient's hands (s. 13(1)(za)); foreign dividends received by a GMC-resident company are exempt if the s. 13(9) conditions are met (s. 13(8)).

The question every holding company asks

Investors comparing locations for a holding company want one answer first: what happens when I sell? The Gelephu Mindfulness City (GMC) answers through the Income Tax Act 2025 (the "Act"), deemed in operation from 26 December 2024 (s. 1(1)), with the first year of assessment commencing 1 January 2026 (s. 2(1)). All amounts are in United States dollars (s. 2AA).

GMC has no capital gains tax as such, and qualifying share disposals by companies are exempt by statute. But the Act taxes gains of an income nature, the boundary between income and capital is a matter of fact, and s. 13W is a safe harbour with conditions and exclusions that must be met and documented.

What section 10 charges

Section 10(1) charges income tax "upon the income of any person accruing in or derived from GMC or received in GMC from outside GMC" under heads that include gains or profits from any trade or business (s. 10(1)(a)), employment (s. 10(1)(b)), "dividends, interest or discounts" (s. 10(1)(d)), rents, royalties and other profits from property (s. 10(1)(f)) and "any gains or profits of an income nature not falling within any of the preceding paragraphs" (s. 10(1)(g)).

This is a charge on income rather than a separate capital gains tax. There is no head for gains of a capital nature and no separate capital gains charge; the residual head in s. 10(1)(g) is limited to gains "of an income nature". A gain that is capital in nature falls outside every head.

The Act does not define "income nature". Whether a sale produces a trading profit or a capital gain is a question of fact, decided under the common law principles that reach GMC through the Application of Laws Act 2024 (s. 3): frequency of transactions, period of ownership, the reason for acquisition and sale, and whether the taxpayer's business is buying and selling such assets. A securities trader is taxed under s. 10(1)(a); a company that holds a subsidiary for years and sells it once is, on ordinary principles, realising capital.

Section 10J: the Act's view of capital and trading stock

Section 10J confirms the distinction. Where a person permanently "appropriates any trading stock" for a purpose other than sale in the ordinary course of business (s. 10J(1)), including holding it "as a capital asset" (s. 10J(2)(a)), its open market value is treated as income of the trade (s. 10J(3)(b)) and notice must be given with the return (s. 10J(5)). An asset cannot be moved from trading stock into a capital holding without first bringing its market value into account; a change of purpose is itself a taxable event.

Section 13W: the share disposal exemption

Section 13W exempts gains or profits derived by a company from disposing of shares in another company where an ownership threshold and a holding period are met. "Disposal" means "the transfer of both the legal and beneficial interests in the shares to another" (s. 13W(9)). The exemption is available only to companies; an individual's gain remains outside s. 10 if capital in nature, and non-citizen individuals are taxed at 0% on chargeable income derived on or before 31 December 2030 (s. 43(1)(ba)). There are three variants of the relief.

Disposals up to 31 December 2025: s. 13W(1)

For a disposal between the Act's commencement and 31 December 2025, the exemption covers ordinary shares where the divesting company had "at all times during a continuous period of at least 24 months ending on the date immediately prior to the date of disposal, legally and beneficially owned at least 20% of the ordinary shares" in the investee (s. 13W(1)(b)). Only ordinary shares count for this purpose.

Disposals on or after 1 January 2026: s. 13W(1A)

From 1 January 2026, the exemption extends to preference shares, and the 20% threshold may be met either by number of ordinary shares (s. 13W(1A)(b)(i)) or by value of ordinary and preference shares against total paid-up share capital "under the applicable accounting principles" (s. 13W(1A)(b)(ii)). The 24-month requirement is unchanged. "Preference shares" means only those accounted for as equity by the investee (s. 13W(9)), so preference shares treated as debt do not count.

Group-level holdings from 1 January 2026: s. 13W(1B)

Section 13W(1B) addresses groups in which the 20% is spread across several companies. The exemption applies where the subject shares were held for 24 months and, at the start of that period, the divesting company "together with one or more companies in the same group" owned at least 20% (by number or value), and the group did not dispose of shares so as to fall below 20% during the period (s. 13W(1B)(c)). Companies are grouped where more than 50% of one's ordinary shares are beneficially owned by the other or by a common company (s. 13W(1C)(b)), with indirect holdings multiplied down the chain (s. 13W(1D)). Shares are treated as disposed of first-in-first-out (s. 13W(1C)(a)). A registered business trust cannot use this variant (s. 13W(1E)).

Across all three variants, the divesting company must own the shares legally and beneficially immediately before disposal, and shares lent under a securities lending or repurchase arrangement are treated as still owned during the borrowing period (s. 13W(4)). The exemption applies only if the company lodges, with its return for the year of disposal or within such further time as the Comptroller allows, the information and supporting documents the Comptroller specifies (s. 13W(2)).

How the exempt amount is computed

The exempt amount is the gain after deducting "all outgoings and expenses wholly and exclusively incurred" in producing it, including the acquisition price, interest on borrowings used to acquire the shares, legal costs, stamp duty and other directly attributable expenses (s. 13W(3)). Two clawback rules follow the relief. Any deduction previously allowed for a diminution in value, write-off, impairment or IFRS 9 loss on the shares is treated as chargeable income in the year of disposal (s. 13W(5) and (6)); conversely, a previously taxed write-back or IFRS 9 profit becomes an allowable expense (s. 13W(7)). A company cannot take impairment deductions on an investment and then sell it tax-free without reversing them.

Exclusions: where the safe harbour ends

Section 13W(8) lists the disposals to which the section does not apply:

• Insurers. Shares whose gains form part of the income of a company referred to in s. 26 (profits of insurers) (s. 13W(8)(a)).
• Unlisted property companies. Shares "not listed on a stock exchange in GMC or elsewhere" in a company that the Comptroller is satisfied trades immovable property, "principally carries on the activity of holding immovable properties", or has undertaken property development, in GMC or elsewhere (s. 13W(8)(ba)). Property used in the company's own trade, including letting, is not "holding" (s. 13W(9)), and past development is disregarded where the property is used in the company's trade and no development occurred for at least 60 consecutive months before the disposal (s. 13W(8)(ba)(iii)).
• Partnerships. Disposals by a partnership, limited partnership or LLP "one or more of the partners of which is a company" (s. 13W(8)(c)).

Outside s. 13W, a disposal falls back to the s. 10 income-or-capital analysis. Section 13W removes the argument; it does not create a charge where none existed.

Section 10L

Section 10L is the provision that most shapes this picture for multinational groups.

Section 10L(1) treats gains from the disposal of a "foreign asset" (property situated outside GMC) by an entity in a "relevant group", received in GMC from outside GMC, as income chargeable under s. 10(1)(g), but only where the gains would not otherwise be chargeable or would otherwise be exempt (s. 10L(2)). A group is relevant if its entities are not all in one jurisdiction or any has a place of business in more than one (s. 10L(5)(b)). Shares are situated where the company is incorporated, or where registered (s. 10L(15)).

Section 10L(8) excludes disposals incidental to a prescribed financial institution's business, disposals by entities enjoying s. 13Y or s. 43D relief, and disposals by an "excluded entity": broadly, a pure equity-holding entity that files required returns, is managed in GMC and has adequate staff and premises there, or another entity with adequate economic substance in GMC (s. 10L(16)). A holding company established now should be structured to meet those conditions (see our guide to GMC company substance requirements).

Dividends

Dividends from GMC companies. Section 13(1)(za) exempts "any dividends paid by any company resident in GMC", a company being resident where "the control and management of whose business is exercised in GMC" (s. 2(1)). The Part 12 withholding provisions cover interest (s. 45), royalties and similar payments (s. 45A) and non-resident directors' remuneration (s. 45B), among others; dividends are not among them (see our guide to withholding tax in GMC).

Foreign dividends received by a GMC company. Section 13(8)(a) exempts "any dividend derived from any territory outside GMC" received in GMC by a non-individual resident in GMC, where the income is subject to tax of a similar character abroad (s. 13(9)(a)), the highest corporate rate there is "not less than 15%" (s. 13(9)(b)) and the Comptroller is satisfied the exemption would be beneficial (s. 13(9)(c)). The foreign tax counted includes the payer's underlying tax (s. 13(10)), and the subject-to-tax condition may be waived (s. 13(9B)). Non-qualifying foreign dividends are chargeable under s. 10(1)(d) when received in GMC, with treaty relief under ss. 49 and 50 (see our guide to double taxation relief for GMC companies).

Dividends out of exempt income. Nothing in s. 13(1) exempts "in the hands of the recipients any dividends ... paid wholly or in part out of income so exempted" (s. 13(3)). A GMC-resident company's dividend is still exempt under s. 13(1)(za) because of the payer's residence; a non-resident payer's own exemption does not flow through.

Practical checklist / Next steps

1. Decide at acquisition whether shares are a capital investment or trading stock and minute it; a later change of purpose is itself taxable under s. 10J.
2. Hold shares legally and beneficially in the company's own name, and document any nominee or custody arrangement.
3. Track the 20% threshold and 24-month period for every investee, using the s. 13W(1A) value test for preference shares and the s. 13W(1B) group test for split holdings.
4. Before selling, check the s. 13W(8) exclusions, especially whether an unlisted investee is a property company.
5. Reverse prior impairment deductions (s. 13W(5)) and assemble the cost and financing evidence required by s. 13W(3).
6. Lodge the information the Comptroller specifies with the return for the year of disposal (s. 13W(2)).
7. Structure the holding company to satisfy the s. 10L "excluded entity" substance conditions.

Frequently asked questions

Is there capital gains tax in GMC?

No separate capital gains tax exists in the Income Tax Act 2025. Section 10(1) charges income, including "gains or profits of an income nature" (s. 10(1)(g)). Gains of a capital nature fall outside the charge; whether a gain is capital or income is a question of fact.

Are all share sales by a GMC company tax-free?

No. Section 13W exempts gains where the company has owned at least 20% of the investee for a continuous 24 months and no s. 13W(8) exclusion applies. Other sales fall back to the s. 10 income-or-capital analysis.

What does section 10L do?

Section 10L treats gains from disposing of a foreign asset by an entity in a multinational group, received in GMC, as income chargeable under s. 10(1)(g), unless the entity is an excluded entity with adequate economic substance in GMC. Other gains on foreign assets are governed by the ordinary s. 10 analysis and, for shares, by s. 13W.

Are dividends taxed in GMC?

Dividends paid by a company resident in GMC are exempt in the recipient's hands (s. 13(1)(za)) and are not subject to withholding under Part 12. Foreign dividends received by a GMC-resident company are exempt if the s. 13(9) conditions, including the 15% foreign headline rate test, are met.

Key takeaways

• The Act charges income, not capital; gains of a capital nature are outside s. 10, and s. 10J polices the move between trading stock and capital assets.
• Section 13W exempts a company's gains on disposing of shares held at least 20% for 24 months, extended to preference shares and group holdings from 1 January 2026.
• The safe harbour excludes insurers, unlisted property companies and partnerships with corporate partners, and claws back prior impairment deductions.
• Section 10L, taxing certain foreign-asset gains of multinational groups, is the multinational-group rule; substance in GMC is the defence.
• GMC-source dividends are exempt under s. 13(1)(za) with no withholding; foreign dividends are exempt under s. 13(8) if the s. 13(9) conditions are met.

This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.

You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.

References

• Income Tax Act 2025, ss. 1(1), 2(1) (definitions of "resident in GMC" and "year of assessment"), 2AA, 10(1), 10J, 10L, 13(1)(za), 13(3), 13(8), 13(9), 13(9B), 13(10), 13W, 26, 43(1)(ba), 45, 45A, 45B, 49, 50
• Application of Laws Act 2024, s. 3