Keywords: stamp duty, special stamp duty, SSD, transfer of shares, buyer's stamp duty, BSD
On 29 October 2012, we published a legal update on the introduction of the Buyer's Stamp Duty (BSD) and the adjusted rates and extension of the holding period in respect of the Special Stamp Duty (SSD).
Transfer of shares in land holding company
BSD is chargeable on all sales and purchases of residential flats except where a buyer is a Hong Kong Permanent Resident (HKPR).
The question arises as to whether BSD may be avoided if an owner (being a company) transfers its residential flat to its subsidiary, and then transfers the shares of the subsidiary to a non-HKPR buyer. On 30 October 2012, the Government issued a press release to clarify the following:
- If a company transfers its residential flat to its subsidiary on or after 27 October 2012 and then sells the shares of the subsidiary to a non-associated body corporate or person within 2 years after the date of the property transfer, then such property transfer will not be exempted from payment of stamp duty (including the BSD).
- The company should notify the Inland Revenue Department within 30 days after the transfer of the shares and pay the stamp duty payable for the property transfer.
Section 45 of Stamp Duty Ordinance
This is in line with the existing stamp duty relief among associated body corporates under section 45 of the Stamp Duty Ordinance. Section 45 exempts ad valorem stamp duty in case of acquisition of residential flats by a body corporate from an associated body corporate or in case of transfer of a residential flat among associated body corporates.
However, in order to enjoy the exemption, (a) the associated body corporates are defined as having no less than 90% of the issued share capital of each other, and (b) there will be no cessation of such association within two years after the relevant property transaction. If the conditions are not fulfilled, IRD will recoup from relevant parties the stamp duty payable for the relevant transaction.
The Government's press release (a) reinforces the two-year period requirement under section 45 of the Stamp Duty Ordinance, and (b) clarifies that the Government's current intention is to extend the existing exemption and relevant conditions as provided in section 45 of the Stamp Duty Ordinance to cover the revised SSD and the new BSD.
If a company transfers its residential flat to its subsidiary on or after 27 October 2012 and then sells the shares of the subsidiary to a non-HKPR within 2 years from the date of the property transfer, then the original property transfer will be subject to (i) ad valorem stamp duty and (ii) the BSD.
If a company transfers its residential flat to its subsidiary on or after 27 October 2012 and the subsidiary sells the residential flat to a non-HKPR within 3 years from the date of the property transfer, then the subsequent property transfer (i.e., to the non-HKPR) will be subject to (i) ad valorem stamp duty and (ii) the SSD according to the applicable level of rate and (iii) the BSD.
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