REALWorld Law

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Please refer to the topic Corporate vehicles in Hong Kong, in particular the sub-topic Types of corporate vehicle for investment.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Stamp Duty

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):

• an acquisition of a residential property by a Hong Kong Permanent Resident (HKPR) who does not own any residential property in Hong Kong on the date of acquisition and is acting on his/her own behalf;
• two or more HKPRs acquiring a residential property jointly, where each purchaser is acting on their own behalf and do not own any residential property in Hong Kong on the date of acquisition;
• a joint acquisition of a residential property by a HKPR and a close relative (ie spouse, parents, children, siblings) who is/are not HKPR(s) where each purchaser is acting on their own behalf and do not own any residential property in Hong Kong on the date of acquisition;
• an acquisition or transfer of residential property between close relatives (whether HKPRs or not) who may or may not own any residential property in Hong Kong;
• nomination of a close relative(s) (whether HKPR or not) who own other residential property in Hong Kong at the time of nomination, to take up the assignment of a residential property;
• an acquisition or transfer of a property by court order or pursuant to a court order, including a foreclosure order;
• a transfer of a mortgaged property to a mortgagee which is a financial institution within the meaning of section 2 of the Inland Revenue Ordinance (Cap. 112 of the Laws of Hong Kong) or to its appointed receiver; or
• an acquisition of a property as replacement of another property that was acquired under various statutory schemes for urban redevelopment where the person is acting on his/her own behalf.

Additionally, AVD does not apply in the following cases (in which case, no AVD is payable):

• nomination of a close relative(s) (whether HKPR or not) who do(es) not own any other residential property in Hong Kong at the time of nomination;
• transfer of a property to a beneficiary of the estate of a deceased person in accordance with a will or the law of intestacy;
• the acquisition or transfer of a property by or to a body corporate from an associated body corporate;
• the acquisition or transfer of a property by or to the Government; or
• a gift of a property received by a charitable institution exempted from tax under section 88 of the Inland Revenue Ordinance.

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).

Buyer's Stamp Duty

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.

Levy

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. 

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

There is no VAT in Hong Kong.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Real estate agents' commission

If there is a real estate agent involved, then a commission will need to be paid to him/her. The normal commercial practice is for both the purchaser and vendor to pay 1% of the purchase price each. However, in the event that parties do not feel it is necessary to use a real estate agent, it is possible to carry out the transaction without one.  

Solicitors' fees

Solicitors may be involved in the transaction for the purposes of checking title, preparing the relevant legal documents etc. As such, aside from limited circumstances provided in the Hong Kong Solicitors' Guide to Professional Conduct, the parties will need to be separately represented and therefore each will usually incur legal costs for engaging their own respective solicitors.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Government Rent

Government rent is levied on property owners regardless of whether or not the property is occupied. This cannot be offset in any way and generally speaking, it is calculated at around 3% of the rateable value of the property. The rateable value of the property is a government assessed value used for official purposes including local taxation.

Rates

Rates are a form of local taxation payable on a quarterly basis in advance. The amount payable however is determined by the Legislative Council each year and varies accordingly. For the Financial Year 2023-2024, the rates percentage charge is 5%. The payment of rates can be set off against amount of property tax payable as described below.

Property Tax

If the property is to be let and rent is collected then property tax is payable. The exact amount payable is calculated at a percentage of the Net Assessable Value. This percentage has been set at 15% from 2008/09 onwards. The Net Assessable Value is calculated by taking the annual rental income less irrecoverable rent, municipal taxation (rates) paid by the owner(s) and a 20% statutory allowance for repairs and outgoings.

Profits Tax

The profits generated from a business carried out by a property owner in Hong Kong (including a business of letting real properties) will likely be subject to profits tax.

However, if the rental income from property chargeable to property tax is included in the profits for profits tax purposes as mentioned above, or if the property owner occupies the property for producing chargeable profits, the amount of property tax paid will be set off against the amount of profits tax payable. This may result in greater deductions in the amounts payable as allowances with respect to repairs and maintenance to the property; interest paid in respect of the cost of acquiring the property (subject to anti-avoidance provisions) and the costs of maintaining the corporation are permitted.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

In addition to rates (local taxation), Government rent, profits and property taxes, there will be the necessary payments of utility bills, possibly management fees and other necessary regular payments. However, in the circumstances, these should not be of a great amount.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Property can be rented out, which would produce rental income.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

If property is let in the course of business, then the rental income will be subject to profits tax.

If the property is let and rent is collected then property tax is payable. The exact amount payable is calculated at a percentage of the Net Assessable Value. This percentage has been set at 15% from 2008/09 onwards. The Net Assessable Value is calculated by taking the annual rental income less irrecoverable rent, rates and statutory allowance for repairs and outgoings.

However, if the rental income from property chargeable to property tax is included in the profits for profits tax purposes, or if the property owner occupies the property for producing chargeable profits, the amount of property tax paid will be set off against the amount of profits tax payable. This may result in greater deductions in the amounts payable as allowances with respect to repairs and maintenance to the property; interest paid in respect of the cost of acquiring the property (subject to anti-avoidance provisions) and the costs of maintaining the corporation are permitted. 

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

Profits may be distributed tax-free as there is no withholding tax on dividends in Hong Kong.

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

No additional tax applies but stamp duty will be payable if the income is generated by a transfer (subject to possible exemptions).

Last modified 19 Jul 2023

What taxes are payable on the sale of real estate and can these be reduced or offset in any way?

No.

Last modified 19 Jul 2023