17/08/18

Hong Kong wealthy save millions using property tax loopholes

(International Adviser) -- Attempts to cool Hong Kong’s runaway property market are being undermined by the ultra-wealthy who are legally using shell companies to sidestep stamp duty.

The tax paid on a property purchase can plummet if the home is held via a shell company, reports Bloomberg.

Under these circumstances, the sale of a property is considered a share transfer and taxed at 0.2%. This compares with a normal rate of 15%.

Non-permanent residents can save even more, however, as they pay 30% stamp duty.

The cherry on top of the sundae is that stamp duty can be as little as zero if the shell company is registered offshore.

Special purpose vehicles

The newswire cited the purchase of a three-storey mansion by a Hong Kong billionaire who was able to save HK$370m (£37.1m, $47.1m, €41.6m) in tax by holding it in a company.

“Many buyers say they will only look at properties through special purpose vehicles,” the chief executive of luxury real estate agency Landscope Realty, Koh Keng-shing, told Bloomberg.

The proportion of property sales made via company share transfers in Hong Kong’s most expensive areas jumped to 27% this year from 13% in 2013, according to figures from real estate agency Midland Realty.

Tax repercussions

The impact on the government coffers, however, is dramatic.

Research by land concern group Liber Research Community found that the Hong Kong Government lost out on at least HK$9.4bn of taxes between November 2010 and May 2018 as a result of the practice.

The special administrative region has attempted to clamp down on the use of shell companies, by making it more difficult to set up new ones.

While not risk-free and with potentially higher due diligence requirements, those who already own a shell company can still make big savings.