Leung Chun-ying

Leung snubs city developers' plea for tax exemption

Chief executive announces that new property 'stamp duty' will apply to all non-local and corporate buyers in bid to close loopholes

PUBLISHED : Wednesday, 19 December, 2012, 12:00am
UPDATED : Wednesday, 19 December, 2012, 7:01am

The government has rejected calls from developers to exempt city companies from its first property tax aimed at non-local and corporate buyers.

Chief Executive Leung Chun-ying announced after an Executive Council meeting yesterday that the original plan to impose a special tax of 15 per cent of the transaction price - known as the buyer's stamp duty - on all company buyers would be upheld.

Leung said: "Now the duty rate is relatively high and property prices also remain high, we do not want to see buyers being tempted into finding loopholes in the law to save themselves the large sums of tax. We are being strict when we draft the bill."

The tax will now cover nonlocal buyers and all corporate buyers. Only permanent Hong Kong residents who buy a property under their own names will be exempt. Leung's comment was a clear rebuff to a proposal of the Real Estate Developers' Association that local companies should be exempt from the tax.

REDA argued that most local company directors or shareholders are permanent residents and should enjoy the same rights as individual local buyers. But Leung's administration stood firm despite repeated lobbying by developers. Many feared that speculators could exploit a loophole to avoid the tax.

It was claimed some speculators could use shell companies to buy properties and then sell them in the second-hand market through a share transfer. The transaction would then be considered a company takeover and would not be subject to the special tax. That loophole is closed.

The only other exemption from the new tax now is for acquisitions by private developers and the Urban Renewal Authority, but the details have yet to be seen in the bill, which will be published on Friday next week and vetted by the Legislative Council on January 9. Once passed, it will take effect retrospectively, dating back to October 27.

Stewart Leung Chi-kin, chairman of REDA's executive committee, said he would meet officials in the next few days to lobby again. He said the association had come up with a suggestion to plug the loophole without subjecting local company buyers to the new tax.

REDA suggested as an alternative that company shareholders should make a declaration not to sell their shares within a set number of years when the company bought a property.

James Tien Pei-chun, of the Liberal Party, said he would seek to amend the bill to exempt permanent residents buying through a company.

But some lawyers said a company buyer could still sell the property without transferring shares, such as by setting up a trust.

Company buyers account for 10 per cent of annual residential property transactions, with 90 per cent of the corporate purchases set up by permanent residents.

The tax is aimed at curbing speculation and addressing locals' complaints about unaffordable home prices.

Sales of new homes have slowed since it took effect.