15 per cent stamp duty
To rein in the city's runaway housing prices, Hong Kong's Financial Secretary John Tsang Chun-wah announced an additional 15 per cent stamp duty on non-permanent-resident and corporate buyers starting from October 27, 2012. The move prompted speculation over the effectiveness of taxation on the real estate market and criticisms that Hong Kong was turning away from its roots as a free market economy in favour of a more protectionist market environment.
Scheme to dodge flats tax won't work, lawyers say
Prospective buyers warned to be wary of an inventive scheme to sell homes through shares in a company to avoid the new stamp duty
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A developer's scheme to sell flats in the form of shares to help buyers escape stamp duty on property purchases will not work, tax experts say.
The government recently announced that non-residents and buyers who use company names to buy flats will have to pay a stamp duty of 15 per cent of the purchase price of the flats.
The extra impost came on top of increases also announced to sales taxes paid on flats that are sold between one and three years of purchase.
Responding to the latest government measure to curb speculation in the market and stem the surge in property prices, a Happy Valley developer was reported by Chinese-language newspapers as saying he would set up a subsidiary company to hold the flats he was developing and then sell them by transferring the subsidiary's shares to buyers.
According to the reports, agents said the developer hoped this would allow buyers to avoid registering their names with the Land Registry and they would not have to pay the stamp duty.
"It won't work," was the blunt comment on the plan from Jennifer Wong, a tax partner with financial consultancy KPMG China, on Friday.
"Under the Stamp Duty Ordinance, if the company and its subsidiary cease to be associated within two years, the stamp duty exemption previously granted will be 'clawed back', and duties, including buyer's stamp duty, become payable."
The claw-back would apply to both the developers and individual flat sellers in the secondary market, Wong said.
Marcellus Wong, a senior adviser at financial consultancy PricewaterhouseCoopers, echoed this interpretation of the tax liability.
"I agree that such an arrangement [buying a flat through shares] may not work. After all, the tax liability is there," he said.
Marcellus Wong added that there were some uncertainties about how the government would close any possible loopholes, since the bill providing for the implementation of the new tax was not finalised.
He suggested that in the meantime buyers wanting to take up the offer of buying property through shares should read their contracts with great care to see who would bear tax liability should it arise.
A more certain route for developers wishing to save buyers the extra cost of paying the new duty would be to offer cash rebates, tax experts said, although this would raise the cost of sales for developers.
Developer Sino Land is offering a cash rebate of HK$68,888 for buyers of the remaining unsold units at its Providence Bay project in Tai Po.
The move comes after just 10 flats were sold in the secondary market in 10 housing estates monitored by Centaline Property Agency on the weekend. This was a 16.7 per cent week-on-week decline and the lowest weekend total in the past nine months.
Meanwhile, Cheung Kong has denied reports that it planned to pay the 15 per cent buyer's stamp duty on the 14 unsold units at its Uptown development in Yuen Long.
Jennifer Wong said there were not many escape routes under the rules. The only escape available was for companies that held flats for sale that were formed before October 27.