[BUYING AND SELLING REAL ESTATE IN HONG KONG]
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purchaser in Hong Kong to acquire property by way of transfer of shares in a limited company. Under such an 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 a 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 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 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 three types of Stamp Duties, namely, AVD, BSD and SSD. Meanwhile, a share transaction is subjected to a significantly lower stamp duty, which is 0.13% (For each Transferor and Transferee) of the amount of consideration or the underlying net asset value of those shares, whichever is the higher. If parties intend to sell and purchase a property by way of transferring shares of a limited
company, it is important that the parties’ interests are adequately protected, and comprehensive legal documentation is required. It is advisable to obtain legal advice before acquiring a property by way of share transfer.
ILN Real Estate Group – Buying and Selling Real Estate Series
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