Tax Tips : Part 1 – Stamp Duties on Transfer of Residential Property

Price of owning a home in Hong Kong is nearly unbearably expensive for families, and it is still surging.

This phenom trigger curiosity of our overseas partners who wonder how the Hong Kong SAR Government reacts to the heated property market.

Although the government owns virtually any land, the government is struggling to increase the supply of housing land. Meanwhile, the Inland Revenue Department, which is Hong Kong tax authority, has placed its relief by imposing Stamp Duty fees to suppress the demand.

At the moment of writing, three types of Stamp Duties are in effect to cool down the property market:

• Amended Ad valorem Stamp Duty (AVD) – Link
• Buyer’s Stamp Duty (BSD) – Link
• Special Stamp Duty (SSD) – Link

Amended Ad valorem Stamp Duty (Amended AVD)

The history of charging Ad valorem Stamp Duty (“ad valorem” means “according to the value” in Latin) on real estates begun from the British colonial government. Now, The government still requires a fee in the event of ownership transfer or transaction of Hong Kong real estates. It charges both the buyers and sellers when the new ownership is officially registered. AVD is calculated in proportion to the value of the real estates concerned, so the rich pay more. It’s fair.

However, the government has made several legal amendments on the Stamp Duty Ordinance since 2010. The AVD is upgraded, the BSD and the SSD are introduced, according to the latest Stamp Duty (Amendment) (No. 2) Ordinance 2018.

The Amended AVD has a new policy to favour Hong Kong Permanent Residents when they buy their home in Hong Kong. It has three fee schedules accordingly:

• Scale 2
• Scale 1
  • Part 1
  • Part 2

Scale 2

Also known as the Original AVD or the lowest cost AVD, it is only valid when all points are met at the moment of transaction is made:

• The trade takes place on or after 5 November 2016, and;
• The real estate concerned is residential property, and;
• The buyer must be an HKPR and not owning any Hong Kong residential property.

Consideration or value of the property (whichever is the higher)	Rates at Scale 2
Up to $2,000,000	$100
$2,000,001 to $2,351,760	$100+10% of the excess over $2,000,000
$2,351,761 to $3,000,000	1.50%
$3,000,001 to $3,290,320	$45,000+10% of the excess over $3,000,000
$3,290,321 to $4,000,000	2.25%
$4,000,001 to $4,428,570	$90,000+10% of the excess over $4,000,000
$4,428,571 to $6,000,000	3.00%
$6,000,001 to $6,720,000	$180,000+10% of the excess over $6,000,000
$6,720,001 to $20,000,000	3.75%
$20,000,001 to $21,739,120	$750,000+10% of the excess over $20,000,000
$21,739,121 and above	4.25%

Scale 1 (Part 2)

Also known as the Double AVD, it fits the transactions concerning any real estate other than residential property (i.e. non-residential property) and takes place on or after 5 November 2016.

Consideration or value of the property (whichever is the higher)	Rates at Scale 1 (Part 2)
Up to $2,000,000	1.50%
$2,000,001 to $2,176,470	$30,000+20% of the excess over $2,000,000
$2,176,471 to $3,000,000	3.00%
$3,000,001 to $3,290,330	$90,000+20% of the excess over $3,000,000
$3,290,331 to $4,000,000	4.50%
$4,000,001 to $4,428,580	$180,000+20% of the excess over $4,000,000
$4,428,581 to $6,000,000	6.00%
$6,000,001 to $6,720,000	$360,000+20% of the excess over $6,000,000
$6,720,001 to $20,000,000	7.50%
$20,000,001 to $21,739,130	$1,500,000+20% of the excess over $20,000,000
$21,739,131 and above	8.50%

Scale 1 (Part 1)

This policy is the latest move in the hope of freezing the surge of the residential property price; it applies to all home transactions except those fall under Scale 2.

Value	Tax Rate at Scale 1 (Part 1)
Any Value	15% Flat

Special Stamp Duty (SSD)

To curb the speculation in the local housing property market, the government enacts SSD on top of the AVD. The SSD is unlike the AVD:

• The SSD applies only on residential property.
• The SSD imposes directly on the sellers of the property.
• The SSD tax rate is inversely proportional to the length of the holding period of a home flat.

The SSD applies to the transactions that happen on or after 27 October 2012. It is tax-free if the flat is held under seller for more than 36 months before the sale.

Holding Period		Tax Rate
6 months or less		20%
6 ~ 12 months or less		15%
12 ~ 36 months or less		10%

Buyer’s Stamp Duty (BSD)

As a policy to turn down the foreign demand of Hong Kong residential property, the BSD is enacted to charge the purchasers except for HKPR.

Applicable to:		Tax Rate of BSD:
Non Hong Kong residents, Any companies		15% Flat

Points to Note:

Q: Is it possible to avoid these stamp duties if either the buyers or sellers in the transactions are limited companies?

A: No. The government gives exceptions to Hong Kong Permanent Residents only. However, the corporations, both Hong Kong companies or non-Hong Kong companies, are not regarded as HKPR, even if the beneficial owners of these bodies are HKPR.

Q: Can someone appoint a Hong Kong Permanent Resident on his behalf to engage in the transaction as the buyer to enjoy the Amended AVD (Scale 2)?

A: No. Stamp Duty Ordinance states that the buyers must act on his behalf, and be the legal and beneficial owners of the property. Please note that making a false or misleading declaration of identity is a criminal offence. It is not worth trying to break the laws.

Q: How is the value of the property calculated for the calculation of the stamp duties?

A: The IRD considers the market value of the property and the stated value of the transaction, whichever is higher.

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In the next blog, we will take a look at some cases of how the potential buyers save the Stamp Duties expense, including the use of companies as tax saving vehicles.

節省稅款方案节省税款方案