Tax avoidance on tycoon’s record HK$2.1 billion Peak home purchase is ‘standard practice’ that costs Hong Kong tax coffers up to HK$2 billion a year, lawmaker says

The biggest-ever purchase of a property on The Peak planned by businessman Chen Hongtian has renewed concerns over a long-lasting loophole in the law that allows tycoons to avoid millions in taxes through company transfers while ordinary Hongkongers have to pay a hefty fee in stamp duty to become a home owner.

Chen will avoid roughly HK$170 million in stamp duty when he buys the HK$2.1 billion house on Gough Hill Road since he is actually buying the company that owns the property. He will only pay a share transfer fee.

Lawmaker Kenneth Leung, who is also a tax adviser, said the mechanism was “standard practice” among property industry players and estimated it cost the government between HK$1 and 2 billion in tax revenues every year.

Trade union leader Lee Cheuk-yan said the tax revenue lost on luxury houses could easily pay for much-needed social programmes including subsidies for low-income families.

But law professionals said it would be “almost impossible” to close the loophole due to the opaque nature of many company transfers – especially when offshore entities were involved.

“It is definitely unfair for ordinary home buyers,” Leung said. Many lawmakers had raised the issue since 2013 when the stamp duty ordinance was first implemented, but the government had not made any move to plug the loophole, he said.