Foreign buyers beware: extra taxes apply when buying a home in Hong Kong

Richard Elms is a consultant at international property firm Savills. He discusses the additional costs foreign buyers have to pay when purchasing a home in Hong Kong.

What are the taxes that foreigners have to pay when buying a home in Hong Kong?

For a foreigner, or someone who doesn’t have a permanent Hong Kong identity card, there are a few stamp duties that apply, which significantly increase the costs of purchasing a Hong Kong home. First of all, you are liable to pay twice the standard stamp duty rate, which is determined on a sliding scale based on the value of your property purchase. It starts at 1.5 per cent for any purchase not exceeding HK$2 million, then goes all the way up to 8.5 per cent for any purchase exceeding HK$21,739,130. More importantly, however, you are liable to pay the buyer’s stamp duty (BSD), which is set at 15 per cent of the purchase price regardless of the transaction amount, so potentially you could be looking at a stamp duty of 23.5 per cent.

If the foreigner’s spouse is a permanent Hong Kong resident, do they still have to pay the stamp duties if buying the flat together as a joint purchase?

According to the Inland Revenue Department, if one buyer is a non-permanent resident, but is purchasing with a “close relative”, which would include a wife or husband, and both are acting on their own behalf, then it is treated as a normal purchase where no BSD is payable. You will need to provide evidence that you are lawfully married.

What if the foreigner buys the property through a shell company? What are the differences in costs and procedures?

The same stamp duty implications apply when buying a property through a shell or holding company as would apply if you were buying as a non-permanent resident, irrespective of whether some of the directors are permanent residents. If the vendor holds the property you wish to purchase under a holding company, then you can purchase the holding company through a transfer of shares. The stamp duty is then based on the transfer of the shares and not the property transaction and can be as low as 0.2 per cent. Buying a company does require a cash purchase and you cannot mortgage the share transaction as you would a property transaction. Also, once you purchase the holding company, you become liable for any debts that the company may hold, so the due diligence is a lengthy process and the solicitor’s fees are higher than for a standard property transaction.

Will the BSD the foreigner has paid be refunded if he or she withdraws from the deal?

If the property agreement for a sale is cancelled [with exception for further resale such as confirmor sale or nomination of another buyer], then the buyer is able to apply for a refund of the BSD as long as it is within two years after the agreement is cancelled.

Are there mortgage restrictions on a foreigner? Can he or she use a property in his or her home country as collateral to borrow in Hong Kong?

There aren’t any restrictions on foreigners as such, but where you derive the majority of your income [from is important]. For instance if you derive the majority of your income from outside of Hong Kong, then you are limited to 10 per cent lower than what you could borrow if you derived the majority of your income from within Hong Kong. With regards to using a property in your home country as collateral to buy in Hong Kong, you would need to speak to the banks as they will have their own policies in place for this. I do know that some banks have offered this service from Britain, Australia and New Zealand to buy property here.

What other particular issues do foreign buyers have to pay attention to?

Your biggest consideration is stamp duty; potentially, this could add a huge amount in terms of cash costs to your purchase. It is also important to understand that banks here may not lend to the same ratio that banks do in your home country, so you may have to put down more in cash as a deposit.