Hong Kong Stamp Duty on Share Transfers Rates, Who Pays, and How to File

Hong Kong Stamp Duty on Share Transfers: Rates and Rules for Buyers

Buying shares in a Hong Kong company obliges the buyer to pay stamp duty. The hong kong stamp duty on share transfers is a tax imposed by the Inland Revenue Department on every transfer of Hong Kong stock. The Stamp Duty Ordinance (Cap. 117) governs the charge. Every transfer of "Hong Kong stock" - shares in a company incorporated in Hong Kong - is subject to stamp duty unless an exemption applies.

Stamp Duty Rates on Share Transfers

The total stamp duty on a share transfer comprises two components:

• Ad valorem duty: 0.1% of the consideration (or market value, if higher) payable by the buyer, and a matching 0.1% payable by the seller. The buyer and seller each pay their own share.
• Fixed duty: HK$5 on the instrument of transfer (the document that transfers the legal title).

The buyer's total liability is therefore 0.1% of the chargeable amount plus half of the HK$5 fixed duty, and the seller pays the same.

Hong Kong Stock Transfer Stamp Duty Rate: How It Is Calculated

The chargeable amount is the higher of the consideration and the value of the shares at the date of transfer. This prevents parties from understating the price to reduce duty.

Example: A buyer purchases 10,000 shares at HK$15 per share. Consideration is HK$150,000. The market value on the transfer date is HK$160,000. Duty is charged on HK$160,000. The buyer pays 0.1% × HK$160,000 = HK$160, and the seller pays the same. Each also pays half of the HK$5 fixed duty on the instrument of transfer.

The fixed duty of HK$5 is charged on each instrument of transfer. If multiple shares are transferred under one instrument, the HK$5 applies once. If several separate instruments are used for parts of the same transaction, the HK$5 applies to each.

Hong Kong Bought and Sold Notes

The Stamp Duty Ordinance requires the broker or dealer handling the transaction to prepare two documents: the bought note and the sold note. These are the records of the transaction.

The bought note is given to the buyer. The sold note is given to the seller. Each note must show the contract date, the number of shares, the price per share, and the total consideration.

Both notes must themselves be stamped. The stamp duty on each is HK$5. The broker collects the stamp duty from the buyer and seller and pays it to the Inland Revenue Department through the electronic stamping system.

Where no broker is involved - a private transfer between two individuals - the parties must prepare the bought note and sold note themselves and arrange stamping.

Hong Kong Stamp Duty on Share Transfer Form: The Instrument of Transfer

The legal document that transfers the shares is the instrument of transfer. The standard form is set out in the First Schedule to the Stamp Duty Ordinance. It contains the name and address of the transferor (seller), the name and address of the transferee (buyer), the number and class of shares, the consideration, and the date of the transfer.

The instrument of transfer must be executed by both parties and stamped within the time limits. The buyer arranges the stamping.

When and How to Pay

Stamp duty on share transfers must be paid within two days after the execution of the instrument of transfer if the transaction is through a broker, or within 30 days if it is a private transfer. The Inland Revenue Department's Stamping Office handles the payment.

The buyer or the buyer's agent (often a broker or solicitor) presents the instrument of transfer, the bought note, and the sold note to the Stamping Office. The stamp duty is paid and the documents are stamped. Share registers are updated only after stamping, and the issued share certificate is delivered to the buyer.

Electronic Stamping

The Inland Revenue Department provides an electronic stamping system for share transfers. This is the standard method for transactions through the Hong Kong Stock Exchange. The broker submits the bought note and sold note online, and the stamp duty is debited from the broker's account. The broker then delivers the stamped document to the buyer.

For private transfers, the parties can use the "Stamp Duty on Share Transfers" e-service through the IRD's eTAX system. The system calculates the duty, accepts payment, and issues an electronic stamp certificate. The instrument of transfer is then physically stamped.

Late Stamping Penalty

A late stamping penalty applies if stamp duty is not paid within the prescribed time:

• Up to one month late: HK$50 or 10% of the duty payable, whichever is higher
• More than one month but not more than two months: HK$100 or 20% of the duty, whichever is higher
• More than two months: HK$200 or 30% of the duty, whichever is higher

Where the duty is deliberately avoided, the penalty can be much higher, including a fine of up to ten times the duty and imprisonment. Stamp the instrument of transfer promptly.

Exemptions

Certain transfers are exempt from stamp duty, including:

• Transfers between associated companies within a group, provided certain conditions are met.
• Transfers of shares in a scheme of reconstruction or amalgamation approved by the court.
• Transfers of shares that are not "Hong Kong stock", such as shares in a company incorporated outside Hong Kong.

To claim an exemption, the party must apply to the Inland Revenue Department and provide supporting documents.

Summary for the Buyer

The buyer of Hong Kong shares must pay ad valorem duty of 0.1% on the higher of consideration and market value, plus half of the HK$5 fixed duty on the instrument of transfer (the seller pays the other half), plus HK$5 stamp duty on the bought note.

Verify that the instrument of transfer is properly stamped before taking delivery of the share certificates. Share transfer stamp duty is a cost of acquisition that, for most transactions, is not deductible for profits tax purposes. It forms part of the cost base for calculating capital gains if the shares are later sold.