How to calculate stamp duty for Hong Kong property purchase.

The calculation of stamp duty when buying HK property is something many people are confused about. I was asked about this some time ago, and there was also a recent comment on this topic on my Park Island blog topic: What will HK property prices do suggesting that the current tax system on HK property made Park Island quite desirable in terms of value for money.

I'll try to provide a guide to HK property stamp duty in a simple way for readers.

First, you need to look at the value of the HK property you are buying. 

Below are the stamp duties to pay on buying Hong Kong property. Legally, its the buyer who pays, although you can negotiate for the seller to cover some or all of it, but as far as the HK Inland Revenue Department is concerned the buyer must pay it:

Amount or value of the consideration		Rate
Exceeds	Does not exceed
	$2,000,000	1.5%
$2,000,000	$2,176,470	$30,000 + 20% of excess over $2,000,000
$2,176,470	$3,000,000	3%
$3,000,000	$3,290,330	$90,000 + 20% of excess over $3,000,000
$3,290,330	$4,000,000	4.5%
$4,000,000	$4,428,580	$180,000 + 20% of excess over $4,000,000
$4,428,580	$6,000,000	6%
$6,000,000	$6,720,000	$360,000 + 20% of excess over $6,000,000
$6,720,000	$20,000,000	7.5%
$20,000,000	$21,739,130	$1,500,000 + 20% of excess over $20,000,000
$21,739,130		8.5%

Everyone must pay these costs, whether a HK citizen/HK PR, or a foreigner. The HK tax department provides some examples of calculating the Buyers Stamp Duty: Calculating BSD for HK property purchase

Next, you need to look at whether the buyer is a Hong Kong citizen or Hong Kong PR, or if the buyer of the HK property is a foreigner. (Unless you are a Hong Kong citizen or Hong Kong Permanent Resident, you will be considered a foreigner. A person typically becomes a PR in HK after having lived and/or worked in HK continuously for more than 7 years).

So, if you are a foreigner, you will need to pay an additional 15% tax based on the value of the property. That is on top of the tax I mentioned above, which all buyers need to pay.

So you can see there is actually a huge benefit in being a PR in HK insofar as buying a HK property is concerned. If for example you have 2 years to go before you get your PR, you would only really buy a HK property (and pay the 15% extra tax) if you thought the property value would rise more than 15% over that time (or 7.5% per annum). Unless you were confident of that, you would not buy. This measure was introduced to make it a little harder for mainland Chinese to enter the market, but as a consequence it has really harmed and is quite unfair to local expats who have lived in HK for some time, but not yet qualified for PR status.

Finally, if this is not complicated enough for you, there will also be a tax you need to pay if you sell within less than 3 years after buying. This should not bother longer term investors, but is designed to deter short term speculators.

This is called the Special Stamp Duty (or SSD).

Special Stamp Duty is calculated by reference to the value of the property at the following rates based on the holding periods of the property by the seller before he sells it:

Holding period	The property was acquired on or after 20 November 2010 and before 27 October 2012	The property was acquired on or after 27 October 2012
6 months or less	15%	20%
More than 6 months but for 12 months or less	10%	15%
More than 12 months but for 24 months or less	5%	10%
More than 24 months but for 36 months or less	-	10%

So basically, I would suggest holding the property for a full 3 years after purchase, unless of course you thought the property was going to fall in value a rate greater than the selling tax you would need to pay for early disposal. Here are some examples on the SSD: Special Stamp Duty calculation examples

***Updated for HK property stamp duty changes 5 November 2016.***

Effective 5 November 2016, the stamp duty on property transactions for non first-time buyers will be raised to 15 per cent.

The new measures will not apply to first time buyers.

It remains to be seen how this will affect the property market, although one observation I have is that for Park Island, given its relative value and affordability, this is latest move will likely strengthen demand from first home buyers. Property yields and rentals across HK should also rise, as the latest measures will slow the speed that developers add new property supply to the market making it increasingly a tighter market for renters.

In the short term property transactions for HK will undoubtedly decrease (not good news for agents).

Some investor money flowing into the residential property sector will likely flow into listed property REITs in HK. Stocks such as The Link REIT (Stock code 823) and Champion REIT (Stock code 2778) will be in strong demand as investors looking for property-related exposure and yields divert cash into these assets.

As I have mentioned in other posts, any increases in stamp duty are over time "priced in" to property prices. What this means is that for buyers who hold property until stamp duty rates are normalized/decreased again (which will happen when the Fed in the US raises interest rates) the additional value will be realized when the stamp duty rates is decreased. So, what the measures have very likely done, is to have further enhanced the ability for the HK Government to keep prices growing in a stable manner by "easing" as needed to counter an eventual US interest rate increase (which due to the peg to the $HKD will also result in corresponding interest rates in Hong Kong increasing). 

Whilst I understand the rationale of the stamp duty changes and "spicy measures", overall, I am of the view that the Government should stay out of the Hong Kong property market, and let Hong Kong get on with business as one of the most free and open economies in the world.