TAXES

Tax on acquisitions


Types of taxes

(a) Ad Valorem Stamp Duty (AVD)

For purchases on or after 5 November 2016, AVD at a flat rate of 15% of the purchase price, irrespective of the amount or value of consideration, would be applicable to all residential property transactions. The seller and the buyer are both liable. However, the buyer usually contracts to pay the AVD.

Key exemptions:

(i) A Hong Kong permanent resident (HKPR) who is acting on his/her own behalf, and does not own any other residential property in Hong Kong at the time of acquisition will be subject to lower rates (AVD at Scale 2 rates, which varies according to the purchase consideration of the residential property or the market value, whichever is the higher); and

(ii) Nomination of, or transfer between, close relatives, irrespective of whether the transferee is a HKPR or is beneficial owner of another residential property in Hong Kong, will be subject to AVD lower rates (i.e., Scale 2 rates);

(iii) Transfer of residential or non-residential property pursuant to a Court Order will be subject to AVD at lower rates (i.e., Scale 2 rates);

(iv) Intragroup transfers of property between associated companies may be exempt from AVD.

For purchase of non-residential property, with effect from 26 November 2020, the AVD rate applicable for purchase of non-residential property from 26 November 2020 is at Scale 2 rates, instead of the previous Part 2 of Scale 1 rates (which is double of the rates of Scale 2).

Stamp duty rates at Scale 2 are charged on the basis of an amount/percentage of the purchase consideration or the market value of the property, which currently range from the lowest HK$100 to the highest at 4.25%.

(b) Buyer's Stamp Duty (BSD)

For purchases on or after 27 October 2012, BSD at a flat rate of 15% of the purchase price would be applicable to all residential property transactions. The buyer is liable to pay the BSD.

Key exemptions:

(i) A HKPR who is acting on his/her own behalf, and does not own any other residential property in Hong Kong;

(ii) Joint acquisition by a HKPR with one or more non-HKPR close relative(s) (i.e. spouse, parents, children, brothers and sisters) each acting on his/her own behalf; (iii) Nomination of, or transfer between, close relatives, whether or not they are HKPRs, acting on his/her own behalf; (iv) Transfer of residential property pursuant to a Court Order; and (v) Intragroup transfers of property between associated companies.

(c) Special Stamp Duty (SSD)

While AVD and BSD target acquisition of residential property, SSD targets disposition.

Residential property acquired on or after 27 October 2012 and resold within 36 months will be subject to SSD. The applicable SSD rate depends on the date of acquisition and the holding period of the property by the seller. Below is a table of the SSD rates:

Key exemptions:

(i) Nomination of a close relative(s) or transfer between close relative(s); (ii) Sale or transfer pursuant to a Court Order; (iii) Sale of the estate of a deceased person; (iv) Sale solely related to a bankrupt’s estate or a company being wound up; and (v) Intragroup transfers of property between associated companies.

In order to enjoy the relevant exemptions, property buyers are required to make a statutory declaration to declare the truthfulness of the facts that trigger the exemption to come into place.

With the above stamp duties in place, many find it tempting to purchase residential property in the name of a HKPR who does not already own residential property in Hong Kong in order to enjoy the relevant exemptions. In doing so, both the homebuyer and the HKPRs who provide their names might be liable to criminal offences and other risks and liabilities as they might not be genuinely purchasing the properties on their own behalf but make a statutory declaration to the contrary with the intention to enjoy the stamp duty benefit.

If you have any questions or comments about this report, please get in touch.

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LEGAL AND REGULATORY