Hong Kong share transfer stamp duty rates and examples

Hong Kong Share Transfer Stamp Duty Rates and Examples

Every transfer of shares in a Hong Kong incorporated company, listed or private, attracts stamp duty under the Stamp Duty Ordinance (Cap. 117). The Hong Kong share transfer stamp duty rates are 0.1% of the consideration or value from the buyer and 0.1% from the seller, plus a fixed HK$5 charge on the instrument of transfer.

Stamp Duty Calculation Hong Kong Shares

The total duty has three components:

• Buyer's duty: 0.1% of the consideration or value
• Seller's duty: 0.1% of the consideration or value
• Fixed duty: HK$5 on the instrument of transfer

Total stamp duty payable is 0.2% of the chargeable amount plus HK$5.

The chargeable amount is the higher of the consideration paid for the shares and the value of the shares at the date of transfer. This prevents parties from avoiding duty by stating a low consideration when the shares carry a higher market value. If a buyer pays HK$1,000,000 for shares valued at HK$1,200,000, the duty is calculated on HK$1,200,000. The buyer pays 0.1% (HK$1,200). The seller pays 0.1% (HK$1,200). Add the HK$5 fixed duty and the total is HK$2,405.

The Inland Revenue Department assesses the value of shares based on the company's net asset value, its earnings record, and any other relevant factors. For a company holding real assets such as property, the IRD looks to the market value of those assets rather than the nominal value of the shares.

Instrument of Transfer Stamp Duty Hong Kong

The instrument of transfer is the legal document that effects the transfer of shares from seller to buyer. It must be in the form prescribed by the Stamp Duty Ordinance. The standard form records the names of the transferor and transferee, the number and class of shares being transferred, the consideration, and the date of transfer.

Present the instrument to the IRD for stamping within 30 days of execution. Late stamping attracts penalties. Once stamped, the instrument is returned to the parties and the buyer can present it to the company's board for approval. After the transfer is approved, the company updates its register of members to record the new shareholder.

The HK$5 fixed duty is payable on each instrument of transfer, regardless of the number of shares being transferred. Where multiple instruments are used for a single transaction, because different classes of shares are being transferred, each instrument attracts its own HK$5 fixed duty.

Bought and Sold Notes Hong Kong Stamp Duty

A share transfer in Hong Kong requires bought and sold notes. These are contract notes recording the transaction between buyer and seller. The Stamp Duty Ordinance requires a bought note for the buyer and a sold note for the seller.

Each bought note and each sold note is subject to stamp duty at 0.1% of the consideration or value. The duty on the bought and sold notes mirrors the duty on the instrument of transfer. The IRD assesses the total duty on the transaction and collects it through the instrument of transfer. The bought and sold notes serve as supporting documents.

For listed shares traded on the Stock Exchange of Hong Kong, the clearing system generates the bought and sold notes automatically. For private company transfers, the parties must prepare the notes themselves. The bought note is signed by the buyer and the sold note by the seller, or by their authorised representatives.

Worked Example: Transfer at Nominal Value for a Company Holding Real Assets

The "higher of consideration and value" rule bites hardest when shares are transferred at nominal value in a company holding real assets.

• Company A holds a commercial property valued at HK$10,000,000
• Company A has 1,000 shares issued at HK$1 each (nominal value HK$1,000)
• The seller transfers all 1,000 shares to the buyer for HK$1,000 (the nominal value)

If the parties stated the consideration as HK$1,000, the stamp duty would appear to be only HK$2 (0.1% buyer + 0.1% seller) plus HK$5, totalling HK$7. The IRD will assess the value of the shares based on the company's underlying assets. Since the company holds a property worth HK$10,000,000, the value of each share is HK$10,000 (HK$10,000,000 ÷ 1,000 shares). The total value of the shares is HK$10,000,000.

The stamp duty is calculated on the higher of the consideration (HK$1,000) and the value (HK$10,000,000). The chargeable amount is HK$10,000,000.

• Buyer's duty: 0.1% × HK$10,000,000 = HK$10,000
• Seller's duty: 0.1% × HK$10,000,000 = HK$10,000
• Fixed duty: HK$5
• Total stamp duty: HK$20,005

Parties cannot avoid stamp duty by transferring shares at nominal value when the company holds valuable assets. The IRD assesses the true value of the shares.

Worked Example: Straightforward Transfer at Market Value

A transfer where the consideration reflects the true value:

• Company B has 10,000 shares
• The seller transfers 5,000 shares to the buyer
• The agreed consideration is HK$500,000 (HK$100 per share)
• The shares are valued at HK$500,000

The chargeable amount is the higher of consideration (HK$500,000) and value (HK$500,000), so HK$500,000.

• Buyer's duty: 0.1% × HK$500,000 = HK$500
• Seller's duty: 0.1% × HK$500,000 = HK$500
• Fixed duty: HK$5
• Total stamp duty: HK$1,005

The buyer and seller each pay HK$500. The instrument of transfer attracts the HK$5 fixed duty.

Stamping Procedure and Transfer Approval

After the instrument of transfer and bought and sold notes are prepared, present them to the IRD for stamping. The IRD assesses the duty based on the documents provided. If the consideration appears low relative to the company's assets, the IRD may request additional information, the company's latest audited financial statements or a valuation of its assets.

Once the duty is paid, the IRD stamps the instrument of transfer. Present the stamped instrument to the company's board of directors for approval. The board must approve the transfer before the company can update its register of members. The Companies Ordinance (Cap. 622) gives directors the power to refuse a transfer in certain circumstances, such as when the transfer would result in the company exceeding its maximum number of members.

After the transfer is approved, the company issues a share certificate to the buyer and updates the register of members. The buyer becomes the legal owner of the shares from the date the register is updated.

Stamp Duty on Share Transfers and the Companies Registry

The Inland Revenue Department handles the stamp duty process entirely. The Companies Registry is not involved in stamping. The Companies Registry does require that any change in the register of members is recorded. If the company files a return of allotment (Form NSC1) or other forms with the Companies Registry, the stamped instrument of transfer may need to be attached as evidence.

For a straightforward share transfer, no filing with the Companies Registry is required beyond updating the company's own records. The register of members is a statutory record kept at the company's registered office or a specified location. It is not filed with the Companies Registry unless the company is required to do so for another purpose.

Summary of Key Points

• Stamp duty on Hong Kong share transfers is 0.1% from the buyer and 0.1% from the seller, plus HK$5 fixed duty on the instrument of transfer
• Duty is charged on the higher of the consideration and the value of the shares
• A transfer at nominal value in a company holding real assets is still charged on the value of those assets
• The instrument of transfer and bought and sold notes must be presented to the IRD for stamping within 30 days
• After stamping, the instrument is presented to the company for transfer approval and the register of members is updated