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Hong Kong Tackling Buyer's Stamp Duty Evasion

by Mary Swire, Tax-News.com, Hong Kong

18 April 2014

Following a question in the Legislative Council (LegCo), Hong Kong's Secretary for Transport and Housing, Anthony Cheung Bing-leung, has explained the Stamp Office's efforts to verify whether property purchases excluded from the scope of the Buyer's Stamp Duty (BSD) were in fact carried out by Hong Kong permanent residents (HKPRs).

The Stamp Duty (Amendment) Ordinance 2014 (the Ordinance), enacted by LegCo at the end of February this year, introduced the BSD. BSD applies to all companies and non-HKPRs acquiring residential properties at a rate equivalent to 15 percent of property purchase prices. The commencement date of the Ordinance was set retrospectively at October 27, 2012 – the date when it was first announced by the Government.

BSD was introduced by the Government in an attempt to dampen down the rapidly increasing prices in Hong Kong's property market, and to accord priority to the home ownership needs of HKPRs in the midst of the tight housing supply situation. The Ordinance therefore provides that a chargeable agreement for a sale, or a conveyance on sale, is not chargeable under BSD if it is shown to the satisfaction of the Collector of Stamp Revenue that the purchaser or transferee under the instrument is "an HKPR acting on his/her own behalf" in the transaction. The exemption condition aims to avoid the situation where a non-HKPR circumvents BSD by purchasing a residential property with the assistance of an HKPR.

However, in the LegCo, it was questioned why the Stamp Office is now insisting that a property purchaser should submit, before a specified deadline, a statutory declaration confirming to be "an HKPR acting on his/her own behalf," in addition to the identity documents already required to be provided to the individual's lawyer. If a declaration is not furnished BSD is payable.

The Minister's reply confirmed that it is not possible to determine if a purchaser or a transferee is an HKPR merely by making reference to identity documents. In order to effectively enforce the exemption arrangement for the relevant purchaser or transferee to claim the BSD exemption in question, the Stamp Office will require the purchaser or transferee to make the statutory declaration.

Bing-leung said after the passage of the Ordinance, that the Inland Revenue Department (IRD) wrote to law firms representing those purchasers or transferees potentially liable to BSD to inform them of the stamping arrangement and the procedures to claim exemption. This included clarification that a statutory declaration would be necessary, to ensure the smooth implementation of the measure, he said.

In addition, a concession is allowed for purchasers or transferees who cannot complete the procedures to claim exemption within the specified timeframe for any special reason. They may apply in writing to the IRD for an extension, which will be considered on a case-by-case basis.

A comprehensive report in our Intelligence Report series dealing with the issues raised by international property investment, and the possible taxation implications raised by such purchases, with an account of the likely (and some less obvious) potential countries for your consideration, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report15.asp
TAGS: individuals | compliance | tax | tax compliance | law | real-estate | legislation | tax rates | stamp duty | Hong Kong | legislation amendments

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