The Law on Hong Kong Special Stamp Duty (SSD) is Finally Passed - Impacts and Pitfalls

After six months of consultations with interested organisations/individuals and deliberations by the Bills Committee of the Legislative Council, the Stamp Duty (Amendment) Ordinance 2011 ("Amendment Ordinance") was finally passed by the Legislative Council and gazetted on 30 June 2011. Apart from the obvious implications, the legislation creates unforeseen consequences which developers, banks, vendors and purchasers of residential properties must note.

Some effects of the Amendment Ordinance are highlighted below:

• The cancellation of deferment of payment of stamp duty for residential property priced at or below HK$20 million will take effect immediately upon the date of gazette of the Amendment Ordinance, i.e. 30 June 2011. In other words, there will be no more deferral of payment of stamp duty for chargeable agreements for sale executed on or after 30 June 2011.
• Additional SSD may be demanded by the Collector of Stamp Revenue ("Collector") on a future date due to the inadequacy of the consideration stated in the agreement for sale and purchase and yet the vendor and the purchaser are made jointly and severally liable for any additional SSD. By that time, it is unlikely that the purchaser will be able to procure payment of the additional SSD by the vendor. The potential liability of additional SSD may also affect title to the property, and hence affect a financing bank.
• SSD is imposed on disposal of a unit after a transfer from a relative. This has no speculation element. It is an unforeseen consequence of the legislation and would affect disposition of property under a normal family arrangement situation.
• Although the Stamp Duty Ordinance (Cap.117) ("SDO") will exempt the usual ad valorem stamp duty, as well as SSD, for intra-group associated companies transfers under Sections 45 and 29H(3) of the SDO, the date of "acquisition" of the property for SSD purposes will be recounted from the date of the intra-group transfer to the transferee instead of the original date of the acquisition by the transferor.
• SSD is imposed on a developer who acquires a bare site and instead of building on it, sells/transfers the bare site to another developer within 24 months. This is so even though the first-mentioned developer may be selling the bare site, not due to speculation, but due to insufficient capital for the development. The additional cost of SSD incurred will inevitably be transferred to consumers.
• Whilst a developer who acquires a site and then sells newly built flats may be exempted from SSD, a developer who acquires an old residential building for renovation (without demolishing the old building) may be liable to SSD if it resells the renovated residential units within 24 months.

• There is no appeal mechanism in the Amendment Ordinance on the applicability of SSD on a case by case basis in the light of individual or personal circumstances such as financial hardship, bereavement, serious sickness, etc.

An elaboration of the above and the main changes in the legislation can be found in the link Purposes of the Amendment Ordinance.

For inquiries related to this Legal Update, please contact:

Ellen Tsao (ellen.tsao@mayerbrown.com)

Raymond Wong (raymond.wong@mayerbrown.com)

Connie H.Y. Yu (connie.yu@mayerbrown.com)

Learn more about our Hong Kong office, Real Estate and Tax practices.