Hong Kong: Domestic Corporate Taxation
In November 2010, Financial Secretary Mr John C Tsang proposed to introduce a Special Stamp Duty (SSD) on residential properties as part of the the government's attempts to curb speculation and cool the property market (see below).
The laws on stamp duty are set out in the Stamp Duty Ordinance. Stamp duty is either a fixed fee or is calculated ad valorem depending on the nature of the transaction. It is payable on:
- Leases, assignments and conveyances of immovable property.
- The transfer of shares or marketable securities
- The transfer of bearer instruments (being instruments under which ownership is transferred through physical delivery).
Immovable Property Stamp Duty Rates
Two separate rates of stamp duty are payable on immovable property:
- The Conveyance of a Freehold or the Assignment of a Leasehold: With effect from April 1, 2010, the rate of stamp duty is progressive and varies from HKD100 up to 4.25% if the value of the transferred interest is more than HKD21,739,120. The 2007 Finance bill reduced the stamp duty rate on transactions of properties with a value between HKD1 million and HKD2 million from 0.75% to a fixed amount of HKD100.
- The Granting of a Short-Term Lease: The stamp duty rate is progressive and varies between 0.25% and 1% of the annual rental value depending on whether the lease is for less than one year or more than 3 years. Any agreement which increases the rent reserved by a chargeable stamped lease is itself chargeable to stamp duty in respect of the additional rent which it makes payable.
Immovable Property Transactions Exempted from Stamp Duty:
The following immovable property transactions are exempt from stamp duty:
- Non-Residential Property: Instruments transferring "non residential property" are exempt from stamp duty. Non-residential property is defined as property which may not by law be used at any time for residential purposes.
- Gifts to Charitable Institutions or Public Trusts: Instruments transferring immovable property by way of gift to a charitable institution or public trust are exempt from stamp duty.
- Approved conveyances on sale to diplomatic or consular bodies.
- A transaction conveying an interest in immovable property between "associated corporate bodies". Entities are defined as associated corporate bodies when one entity holds over 90% of the share capital of the other or when a 3rd entity holds over 90% of the share capital of both entities. The association must remain for 2 years after the transfer in default of which the full level of stamp duty must be paid over retrospectively. The financing of the transaction cannot come from an unassociated body.
- Mortgages: Mortgages are free of stamp duty.
Immoveable Property Stamp Duty Anti-Avoidance Provisions
There are elaborate anti-avoidance provisions in place aimed at deterring speculation. Thus where the beneficial owner of real estate executes an instrument in favor of a third party under which he undertakes to hold the real estate on trust for the third party duty is payable on this instrument as if a conveyance had taken place. Likewise stamp duty is payable where under an uncompleted contract of sale the vendor is deemed by law to hold on trust for the purchaser.
Stamp Duty Payable on Shares & Marketable Securities
Stamp duty of 0.2% is payable on the transfer of shares or marketable securities whereas 0.1% stamp duty is payable on the issued share capital of a company.
Securities Transactions Exempted from Stamp Duty
The following transactions are exempt from stamp duty:
- Loan capital transactions, bills of exchange, promissory notes, certificates of deposit, exchange fund debt instruments and Hong Kong multilateral agency debt instruments.
- Transactions involving debentures, loan stocks, funds bonds or notes that are not denominated in Hong Kong currency except to the extent that they are redeemable in that currency.
- Stock donated to charitable bodies or public trusts which are exempt from taxation in Hong Kong.
- A transaction conveying stock between "associated corporate bodies". Entities are defined as associated corporate bodies when one entity holds over 90% of the share capital of the other entity or when a 3rd entity holds over 90% of the share capital of both entities. The association must remain for 2 years after the transfer, in default of which the full level of stamp duty must be paid over retrospectively. The financing of the transaction cannot come from an unassociated body.
Stamp Duty Payable on Bearer Instruments
The amount of stamp duty payable is 3% of the value of the instrument transferred.
Stamp Duty Concession in Respect of ETFs
The Financial Secretary proposed in the 2010/2011 budget to extend the stamp duty concession in respect of the trading of exchange traded funds (ETFs) to cover ETFs with the value of Hong Kong stock not exceeding 40% of the aggregate value of the underlying portfolio. The measure was to be implemented with immediate effect. ETFs satisfying the requirement can apply to the Inland Revenue Department for the concession under section 52 of the Stamp Duty Ordinance.
Special Stamp Duty (SSD) on Residential Properties
Following a significant inflow of 'hot money', leading to substantial increases in asset prices in Hong Kong, the Financial Secretary, John C Tsang, announced new anti-property speculation measures in November 2010. Among them was the SSD on residential properties, charged on top of the current ad valorem property transaction stamp duty.
Any residential property acquired on or after November 20, 2010, either by an individual or a company, listed or unlisted, and regardless of where it is incorporated, and resold within 24 months will be subject to the proposed SSD.
The SSD will be payable jointly and severally by both the buyer and the seller in the resale transaction, and will be calculated based on the consideration for the resale transaction at regressive rates for different holding periods.
It will be charged at 15% if the property is held for six months or less; 10% if the property is held for more than six months but for 12 months or less; and 5% if the property is held for more than 12 months but for 24 months or less.
It is also proposed to disallow deferred payment of stamp duty, including SSD, for residential property transactions of all values, while, to deter non-compliance, the existing statutory sanctions will be extended to cover the SSD. Any person who fails to pay the SSD by the deadline for payment shall be liable to penalties up to 10 times the amount of the SSD payable.
In remarks to the Legislative Council in June 2012, Tsang confirmed that the government would introduce further measures, if necessary, to ensure the stable and healthy development of Hong Kong’s residential property market.