Hong Kong stamp duty

Loophole lets home sellers evade stamp duty

Levy that can be skirted by holding flat under a company name also covers original sales tariff

PUBLISHED : Thursday, 01 November, 2012, 12:00am
UPDATED : Thursday, 01 November, 2012, 4:01am

A government move to close a loophole that would allow outside flat buyers to evade the new 15 per cent stamp duty still leaves other escape routes.

It has acted to stop developers from holding flats through a company subsidiary before selling them via share transfers to buyers, hence helping the buyer to avoid the tax.

But it does not extend to the existing loophole where a homeowner has been able to avoid the 4.25 per cent stamp duty using the same scheme.

It also does not cover cases in the secondary market where a person purchases a flat by buying the shares of the company that owns it.

" In such cases, where the buyer is regarded as buying shares, not property, stamp duty does not have to be paid," the president of the Hong Kong Taxation Institute, Philip Hung, said.

Officials last week acknowledged the problem of share transfers but said they accounted for just 0.1 per cent of all transactions.

The 15 per cent Buyer's Stamp Duty was imposed on non-local and corporate buyers last week in a bid to curb speculation.

It is on top of the existing duty, which ranges from HK$100 for flats under HK$2 million to 4.25 per cent of the property value.

The government said the intention was also to cover the stamp duty payable by the seller of a flat, which has been extended to three years from the date of purchase and the rates raised 5 percentage points. Sellers have been able to avoid this by using the same share deal scheme.

Terry Chan, a senior account manager at Centaline Property Agency's branch in upscale Deep Water Bay, said some mainland buyers were exploring ways to circumvent the buyer's duty, including purchasing shares of those companies that hold flats for sale.

"But such arrangements need to go through a comprehensive search by lawyers and accountants to ensure the shell companies which hold the flats have no hidden debt," he said.

"Otherwise it is a risky move to do this."

Lawmaker James To Kun-sun agreed officials must plug the share transfer loophole so as not to defeat the purpose of the measure meant to curb speculation.

Meanwhile, Wilson Chan, director of sales and marketing of mid-tier developer K Wah, said the company planned to hold on to their new projects for long-term investment.

Transactions in both the primary and secondary markets have been "frozen" and owners have also lowered their asking prices by 5 to 10 per cent, he said.

But the new tax rule does not seem to have turned off all mainland buyer interest in the Hong Kong property market.

A buyer from Anhui province bought a 600 sq ft unit at The Reach in Yuen Long for HK$4.3 million yesterday.

Companies that acquire old buildings for redevelopment are exempt from the 15 per cent duty as long as they rebuild the blocks within a specified time.

One such company, Richfield Realty, said it welcomed the new taxes as high property prices had slowed down urban renewal.

Additional reporting by Kwong Man-ki