What taxes are payable in relation to the purchase of real estate via the various types of corporate vehicle available and who is responsible for the payment of these taxes?
The obligation to pay stamp duty rests on both the vendor and purchaser but the commercial practice in Hong Kong is that the purchaser will usually be responsible for paying it. The amount to be paid depends on the consideration/market value of the property at the time of the purchase. Payment should be completed within 30 days after the execution date of the agreement for sale or conveyance on sale for the acquisition of both residential and non-residential property.
Under the Stamp Duty Oridnance, for any sale or transfer of immovable property, such transaction may be subject to ad valorem stamp duty (AVD) rates at Part 1 of Scale 1, Part 2 of Scale 1 or Scale 2 depending on the nature of the transaction. A summary of the Scale 1 AVD and Scale 2 AVD rates can be found on the Hong Kong Government website here.
Any instrument executed on or after 5 November 2016 for the sale or acquisition of any residential property or the conveyance on sale of any residential property is subject to 15% of the consideration or value of the property (whichever is higher) (i.e. Part 1 of Scale 1), unless specifically exempted or otherwise provided as described below.
For non-residential property, the Stamp Duty Ordinance was amended in 2020 to revert the AVD rates from the rates under Part 2 of Scale 1 to the rates under Scale 2. Following the passing of the Stamp Duty (Amendment) Ordinance 2021, deemed to be effective from 26 November 2020, unless otherwise provided, any instrument executed on or after 26 November 2020 for the sale and purchase or transfer of non-residential property will be subject to AVD at the Scale 2 rates, while any instrument executed on or after 23 February 2013 but before 26 November 2020 for the sale and purchase or transfer of non-residential property remain to be subject to AVD at the Part 2 of Scale 1 rates.
To ease the burden on buyers purchasing small- and medium-sized properties and car parking spaces, especially first-time home buyers, in February 2023 the Hong Kong Government has further proposed under the Public Revenue Protection (Stamp Duty) Order 2023 to adjust the value bands of the Scale 2 AVD rates payable for sale and purchase or transfer of both residential and non-residential properties. With effect from 22 February 2023, the Scale 2 ADV rates payable for sale or transfer of residential and non-residential properties starts at HK$100 for properties worth up to HK$3 million, instead of HK$2 million under the original Scale 2 rates, and a higher 3.75% rate, which used to kick in for properties worth more than HK$6 million and up to HK$20 million, now only applies to properties worth more than HK$10 million.
The purchaser and the vendor continue to be jointly and severally liable to pay AVD.
There are a number of exceptions to the application of the 15% AVD rates (in which case, the Scale 2 AVD rates apply instead):
Additionally, AVD does not apply in the following cases (in which case, no AVD is payable):
For sale or transfer of residential properties, a HKPR purchaser who changes his/her single residential property would normlally be entitled for partial refund of AVD under the refund mechanism. Upon paying AVD at 15% rate and satisfying conditions for partial refund, he/she may seek a refund of AVD paid in excess of that computed under Scale 2 rates.
HKPRs mainly include holders of valid Hong Kong Permanent Identity Cards as defined under the Registration of Persons Ordinance (Cap. 177 of the Laws of Hong Kong). This definition also extends to Buyer's Stamp Duty (see below).
The government of Hong Kong has introduced Buyer's Stamp Duty (BSD) which took effect on 27 October 2012. Unless exempted, BSD is imposed on all residential properties acquired on or after the effective date by any person (including a company incorporated) other than a HKPR. It is charged at a flat rate of 15% on the stated consideration or the market value of the property (whichever is the higher), and is payable in addition to the AVD and special stamp duty (please see section on ‘Special Stamp Duty’ below), if applicable.
The buyer or the transferee is liable to pay the BSD within 30 days after the execution of the chargeable document (eg a provisional agreement of sale and purchase). If the time for stamping of any instrument chargeable with BSD falls before the amended Stamp Duty Ordinance (SDO) was published in the Gazette (ie 28 February 2014), that time for payment is to be replaced by a period of 30 days commencing immediately after the date of Gazette (ie on or before 30 March 2014).
BSD will be exempted in a number of situations. Below are the circumstances in which the Government will grant an exemption:
(i) acquisition by a HKPR jointly with a close relative(s) (ie spouse, parents, children, brothers and sisters) who is/are not HKPR, where each of the purchasers is acting on his/her own behalf;
(ii) transfer of property to a close relative who is not a HKPR, or to close relative(s) jointly one or more of whom not being HKPR, where each of the transferees is acting on his/her own behalf;
(iii) nomination of a close relative(s) who is/are not HKPR to take up the assignment, where each of the nominees is acting on his/her own behalf;
(iv) addition/deletion of name(s) of person(s) who is/are not HKPR to/from a chargeable agreement for sale or a conveyance on sale in respect of a residential property if the person(s) is/are a close relative(s) of the original purchaser(s), where each of the persons is acting on his/her own behalf;
(v) acquisition or transfer by or to a purchaser or transferee by a court order which includes a foreclosure order obtained by a mortgagee whether or not it falls under the definition of a financial institution within the meaning of section 2 of the Inland Revenue Ordinance (IRO);
(vi) acquisition or transfer of a mortgaged residential property by or to a mortgagee which is a financial institution within the meaning of section 2 of the IRO, or by a receiver appointed by such a mortgagee;
(vii) acquisition or transfer by or to a body corporate from another associated body corporate;
(viii) acquisition of residential properties by persons to replace residential properties under various statutory schemes for urban redevelopment where the person is acting on his/her own behalf;
(ix) acquisition or transfer of residential properties by or to the Government; and
(x) gift of residential properties to charitable institutions exempted from tax under section 88 of the IRO.
A HK$350 levy is charged in accordance with the Property Management Services Ordinance and the Property Management Services (Levy) Regulation. Any conveyance on sale as defined under section 2(1) of the SDO that is chargeable with stamp duty under head 1(1) in the First Schedule to the SDO is a leviable instrument. A conveyance on sale generally means each conveyance whereby any immovable property, upon the sale thereof, is transferred to, or vested in, a purchaser.
The transferee (generally the purchaser) of a leviable instrument is liable to pay the levy. If there is more than one transferee under the instrument, all transferees are jointly and severally liable to pay the levy.
The levy is payable within 30 days after the leviable instrument is executed, which is the same as the timeframe for stamping.