As an attempt to cool off residential property market, the Hong Kong Government, on 4 November 2016, announced that the Stamp Duty Ordinance would be amended to increase the ad valorem stamp duty (“AVD”) rates for all residential property transactions to a flat rate of 15 percent with effect on 5November 2016.
This is a significant leap from the so-called “Double Stamp Duty” (Scale 1 of AVD) under the current regime, which stands at a range of 4.25 to 8.5 percent, being applicable to purchases by non-Hong Kong permanent residents and/or if the purchaser already owns another residential property at the time of the subsequent purchase.
Key Features of New AVD Rates
- There will be a flat rate of 15 percent of the purchase price applied, irrespective of the amount or value of consideration.
- The flat rate will apply to all residential purchases, irrespective of whether the purchaser is individual, company or otherwise.
- The flat rate will apply to all agreements for sale and purchase executed on or after 5 November 2016, unless specifically exempted or provided otherwise in the Stamp Duty Ordinance.
- The ADV must be paid within 30 days after the execution date.
Exceptions & Exemptions
According to Government, exemptions and exceptions to the payment of AVD rates already provided for in the Ordinance will continue to apply.
One key exception is on residential property acquired by a Hong Kong permanent resident (“HKPR”) who:
- is acting on his/her own behalf; and
- does not own any other residential property in Hong Kong at the time of acquisition.
For those purchases, the lower rate under Scale 2 of AVD is chargeable.
The refund mechanism under the existing regime is also retained. Some key examples include:
- An HKPR buyer who changes his/her single residential property within six months from the date of completing the new transaction.
- An acquisition of old residential properties for redevelopment purpose.
The AVD paid excess of that payable under lower rate at Scale 2 (ie, the difference between higher rate at Scale 1 and the lower rate at Scale 2) would be refunded.
The duty is on the applicable to prove to the satisfaction of the Collector of Stamp Duty that the relevant criteria for the refund are satisfied.
Non-Residential Properties Not Affected
Transactions relating to non-residential properties will not be affected by the change.
The Stamp Duty Ordinance will need to be amended to incorporate the above changes. It remains to be seen whether the actual amended provisions will tally with the above measures so announced by the Government.
The FAQ published by the Inland Revenue Department can be found here: http://www.ird.gov.hk/eng/faq/index.htm#avd.
Such drastic increase of the AVD rates will no doubt cool down the residential property market with immediate effect. However, given the increasing demand for domestic homes and the consistent shortage of residential land supply (which, interestingly, is controlled by Hong Kong Government itself), it remains to be seen whether and how this new measure could effectively contain the heat in residential property market in long-run.