Buying property via shell company may attract profits tax

PUBLISHED : Friday, 21 March, 1997, 12:00am
UPDATED : Friday, 21 March, 1997, 12:00am

People buying flats through the transfer of shell company shares may be taxed on any profits from future sales, a tax expert says.


Deloitte Touche Tohmatsu senior tax manager Kaiser Kwan Kim-fung said purchasers should be cautious buying flats through this kind of transaction because the Inland Revenue Department was getting tough on property speculation.


The department's clampdown was aimed at the trading of pre-sale properties through the transfer of shell company shares with quick turnover, he said.


Mr Kwan said the self-regulatory measures proposed by the developers' association did not stop speculators re-selling unfinished flats through the transfer of company shares.


People who bought flats through buying shell company shares would bear all liabilities of the company including any potential tax burden and hidden debt, he said.


When the flats were resold, genuine buyers could be charged a 16.5 per cent corporate profits tax for any profit generated because the Inland Revenue might regard the sales as a business activity.


He suggested that buyers include written conditions in the agreements for the trading of shell companies to ensure that original owners share any costs arising from future disposal of the property.


'Otherwise, ordinary end-users should avoid buying flats through this kind of arrangement,' he said.


 

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