Stamp duty loophole cost HK purse HK$9.4 billion in 8 years, study finds

12-Jul-2018 Intellasia | SCMP | 6:02 AM Print This Post

Local property developers, mainland Chinese and firms registered in Bermuda or the British Virgin Islands are taking advantage of the system, Liber Research Community says

A loophole in Hong Kong’s stamp duty system has cost the public purse at least HK$9.4 billion (US$1.2 billion) in the past eight years by allowing buyers to acquire properties almost tax-free via the purchase of companies, a study published on Tuesday has found.

Research by land concern group Liber Research Community identified at least 126 cases between November 2010 and May this year in which buyers were suspected of acquiring property-owning firms to avoid the levy.

The findings have reignited public discussion about the long-standing tax loophole, which critics say encourages market speculators.

About 60 per cent of the cases unearthed by Liber involved non-local buyers, mostly mainland Chinese. Other overseas buyers included companies registered in Bermuda or the British Virgin Islands, as well as new migrants to the city who had not been resident for the requisite seven years to secure permanent residency.

But some cases involved prominent local property developers, as well as managers of well-known companies on the mainland, popular entertainers and even members of the Chinese People’s Political Consultative Conference, the nation’s top political advisory body.

Hong Kong law requires local buyers who already own a property to pay 15 per cent stamp duty when buying a second one. Non-local or corporate buyers need to pay another 15 per cent on top. In addition, if a property owner sells a flat within three years of purchase, he or she must pay an extra stamp duty of up to 20 per cent, depending on how long they held the property.

However, acquiring a flat by buying the company that already holds it only incurs a share transfer tax of 0.2 per cent.

“The government says it wants to solve Hong Kong’s housing crisis by finding more land to build more flats. But at the same time, our housing resources are drained from this loophole for speculators,” Liber member Henry Chan Hin-yan said.

“We are also very worried this loophole will make Hong Kong an international tax avoidance haven and a hotspot for rich mainland Chinese to stash their money.”

The city has been consistently ranked the world’s least affordable property market in surveys.

The Liber researchers used news reports to first identify the cases in which buyers were suspected of escaping tax. They then looked up the addresses of those properties and found the holding companies using the city’s official Land Registry. If a firm’s directors or shareholders changed in Hong Kong’s Companies Registry at the time of the property sale, the researchers concluded the transaction had avoided stamp duty.


Category: Hong Kong

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