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In its 2026-27 Budget, the Hong Kong Government announced proposals to reverse a series of Hong Kong court decisions which may deny intra-group relief from stamp duty to corporate groups transferring shares within the group where a member of the group may be a body corporate that does not issue share capital. The proposal both ensures that relief no longer depends upon the peculiar legal form of involved members of a corporate group and lowers the share ownership threshold by which entities are considered to be part of the same corporate group for the purposes of intra-group relief
In this article, we outline the proposal and provide the historical context for the proposal. If you’d like more information about intra-group relief from stamp duty or Hong Kong tax more generally, please contact one of our Tax lawyers.
The Stamp Duty Ordinance (“SDO”) imposes stamp duty both on a purchase and sale of Hong Kong stock and on a voluntary disposition of Hong Kong stock resulting in a change of beneficial interest. For this purpose, subject to exemptions, “Hong Kong” stock includes shares and debentures the transfer of which is required to be registered in Hong Kong. A corporate group holding shares of a Hong Kong incorporated company thus holds Hong Kong stock. In the absence of exemptive relief, transfers of such shares may give rise to liability for stamp duty.
In principle, where a corporate group arranges for one member of the group who holds Hong Kong stock to transfer the Hong Kong stock to another member of the same group, no stamp duty should be payable. To give effect to this principle, section 45 of the SDO provides that bodies corporate are associated if:
“One is beneficial owner of not less than 90 per cent of the issued share capital of the other, or a third such body is beneficial owner of not less than 90 per cent of the issued share capital of each”.
Judicial History
Our own experience as a firm indicated past willingness of the Stamp Office to accept that corporate bodies such limited liability companies, limited liability partnerships and limited partnerships could potentially qualify as associated bodies where their equity structure was akin to share capital. The District Court affirmed this practice, holding that that although the definition of associated bodies corporate relies upon the concept of “issued share capital”, bodies corporate with equity interests which are not referred to in common parlance as “shares” may nevertheless qualify for relief.
Court of Appeal
The Court of Appeal reversed the ruling of the District Court holding that the reference to “issued share capital” used to define whether corporate bodies were associated was a reference to issued share capital in the domestic law company sense rather than to a broader concept of a participation interest in the corpus and income of a corporation that is economically and juristically analogous to share capital at Hong Kong law.
Court of Final Appeal
The Court of Final Appeal affirmed the Court of Appeal’s decision, ruling that limited liability partnerships (“LLPs”) don’t qualify for intra-group stamp duty relief under section 45. The court found that LLPs cannot issue “share capital”, a mandatory requirement for establishing association between a transferor and transferee.
The court refused to broaden the term judicially to interpret “issued share capital” to include analogous equity interests, calling such an interpterion vague and unsupported by the provision’s legislative history.
New Legislative Proposal
In its 2025-26 budget, the Hong Kong Government proposed the enactment of new legislation both to reverse the narrow interpretation placed by the courts on the term “issued share capital” in section 45 and to lower the threshold for association from 90% to 75%. Though draft legislation has yet to be introduced into the Legislative Council as of May, 2026, it is understood that once enacted, the changes will be retroactive to February 25, 2026.
Though final commentary must await legislation, as proposed, it appears that:
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all bodies corporate will now be eligible for relief whether or not such bodies corporate issue share capital;
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a body corporate, “A”, will be associated with another body corporate, “B”, if A has at least 75% direct or indirect beneficial interest in B or if A is entitled to exercise, or control the exercise of, at least 75% of the voting rights of B.
Though not articulated in guidance, it would seem to follow that A and B will equally be associated with each other if a third body corporate, “C”, holds a 75% direct or indirect beneficial interest in A and B or is entitled to exercise, or control the exercise of, at least 75% of the voting rights in A and B.
It appears that even before the legislation comes into effect, the Stamp office will accept applications for stamp duty relief in respect of instruments executed on or after February 25, 2026.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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