[BUYING AND SELLING REAL ESTATE IN HONG KONG]
122
fees (HK$350) on the assignment and register the assignment at the Land Registry. Stamp Duty Implications Under the Stamp Duty Ordinance (Cap.117) (“SDO”), the vendor and/or the purchaser may be liable for the payment of Ad valorem duty (“AVD”) (if applicable) for the sale and purchase of a landed property. However, payments of AVD (if applicable) are not mutually exclusive. The following stamp duty implications will have to be carefully considered prior to entering into a sale and purchase transaction in relation to landed property:- Ad Valorem Duty (“AVD”) Effective from 11 am on 28 February 2024, the Government of HKSAR has announced that sellers and buyers of residential properties in Hong Kong are only required to pay ad valorem stamp duty (AVD) at the same rates as Scale 2 rates (from HK$100 up to 4.25% of the consideration). Any agreement executed on or after 26 November 2020 for the sale and purchase or transfer of non-residential property, either by an individual or a company will be subject to AVD at the rate set out under “Scale 2” under Schedule 1 to SDO (i.e. a rate ranging from $100 to 4.25% of the consideration or value of the residential property, whichever is the higher), unless specifically exempted or provided otherwise. While it is typical for the purchaser to agree to bear the AVD, it is important to note that under the Hong Kong law, the purchaser, the vendor, and any person who uses the instrument will be jointly and severally liable to pay AVD, irrespective of any agreement to the contrary made between them.
Sale and Purchase of Property by way of Transfer of Shares On the other hand, it has now gradually become a common practice for potential purchaser in Hong Kong to acquire property by way of transfer of shares in a limited company. Under such arrangement, the vendor, who is actually the shareholder of the limited company, agrees to sell and the purchaser agrees to purchase all the issued share capital and liabilities of and in that limited company. As a result, the purchaser will acquire the property through becoming the shareholder of that limited company in place of the vendor. Unlike the usual PASP as aforesaid, an agreement for the sale and purchase of shares of limited company is a more complicated legal document. Apart from taking over the shares of a limited company, the purchaser will also have to take over the debts and liabilities of that limited company which is associated with the share transfer transaction. However, such debts and liabilities of the limited company may not be easily discovered or notified by the purchaser unless a thorough due diligence examination of the accounting records and corporate documents of that limited company has been conducted. Further, complications may arise from the share transfer transaction if financing is required by the purchaser. The approach will be totally different from applying for mortgage loan for financing the purchase of a property through a simple sale and purchase as aforementioned. From a tax perspective, a purchaser may prefer making his/her purchase through a company in order to enjoy lower stamp duty. As mentioned above, purchase of property in Hong Kong may be subject to AVD. Meanwhile, a share transaction is subjected to a significantly lower stamp duty, which is 0.1% (For each Transferor and Transferee) of the amount of consideration
ILN Real Estate Group – Buying and Selling Real Estate Series
Made with FlippingBook Online newsletter