More using company share transfers to buy property and dodge duties

If you acquire the company that owns a property, you only pay 0.2 per cent duty. No wonder many luxury flats are bought that way

PUBLISHED : Wednesday, 13 November, 2013, 4:01am
UPDATED : Wednesday, 13 November, 2013, 11:53pm

A growing number of buyers of luxury residential and commercial properties are making their purchases through companies to escape paying stamp duties.

One estate agent said up to half of all the deals done at Residence Bel-Air in Cyberport and the luxury housing estates above the Kowloon MTR station had been made through company transfers since the government doubled stamp duties on February 22.

"Previously only one in 10 transactions were company transfers," the agent said.

The doubling of stamp duties means buyers pay between 1.5 per cent - the rate for properties valued at less than HK$2 million - and 8.5 per cent, the rate for properties valued at more than HK$21.7 million.

That change followed the introduction in October last year of an additional stamp duty of 15 per cent levied on buyers who are not permanent residents or who buy property through a company.

Buyers who transact their purchase by acquiring the company that owns a flat, rather than acquiring the property directly, pay duty of only 0.2 per cent irrespective of the property's price.

"The first question we now ask someone who wishes to sell a property valued at tens of millions of HK dollars is whether the buyer could buy the property via a company transfer," said an agent at a global surveyor's firm. "Transaction costs have become so large they can make a buyer hesitate. If they have to pay the full transaction costs including stamp duty, agent's commission, and legal fees, the cost of buying a property worth HK$500 million could amount to about 10 per cent."

China Infrastructure Investment started offering 10 houses for sale at the Las Pinadas development in Sai Kung in September. It is selling the houses through company transfers.

While buying a property through a company will incur lower stamp duty, accountant Mabel Chan Mei-bo said buyers using this method would have to accept the investment risk of buying a whole company.

The potential risks of such a transaction could include the liabilities of the company that a property buyer takes over, she explained.

"For example, the company may have done business or made money from property investment before, and it may not have paid tax. This then becomes the liability of the new shareholder of the company that was used to make the property transfer," she said.

Buyers using the method would need to conduct due diligence before they bought the company, said Chan. "But no matter how carefully they examine the company they may not be 100 per cent sure it has no hidden debts.

"So by using this method to acquire a property a buyer must be prepared to accept a degree of investment risk."

A spokesman for the Financial Services and the Treasury Bureau said buying a company involved risk because the buyer might not know all the liabilities of a company. He said the purchase of property through the transfer of shares should not be a common practice.