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Stamp duty on property transactions in Hong kong

Budget 2024/25: Updates on Stamp Duty on Property Transactions in Hong Kong

OLN Marketing

Budget 2024/25: Updates on Stamp Duty on Property Transactions in Hong Kong

March 7, 2024 by OLN Marketing

In the 2024/25 Budget (the “Budget”) delivered by the Financial Secretary of the HKSAR on 28 February 2024, a number of tax measures were proposed. Most notably, all demand-side management measures for residential properties have been cancelled with immediate effect, meaning that no (i) Special Stamp Duty (“SSD”), (ii) Buyer’s Stamp Duty (“BSD”) or (iii) Ad Valorem Stamp Duty (“AVD”) at 7.5% under Part 1 of Scale 1 of Head 1(1A), First Schedule of the Stamp Duty Ordinance (Cap. 117) (“SDO”) needs to be paid for any residential property transactions starting from 28 February 2024.


Property market in 2023

As illustrated in the Budget, insofar as a residential property is concerned, the market sentiment has become very cautious since the middle of 2023 in view of the rising interest rates and uncertainties in the external environment. In 2023, residential flat prices fell by 7% and the number of residential property transactions declined by 5% to a low level of around 43,000.

Cancellation of all “spicy measures”

It is under the backdrop of the property market’s weak performance that all “spicy measures”, including the SSD, BSD and AVD at 7.5% under Part 1 of Scale 1 were cancelled with immediate effect on 28 February 2024.
However, residential property purchasers would still have to pay AVD at the rate under Part I Scale 1 but such rate has been amended to be same as those of AVD under Scale 2 of Head 1(1A), First Schedule of the SDO (i.e., the rate for the sale and purchase of non-residential property on or after 26 November 2020) with effect from 28 February 2024, by way of the Public Revenue Protection (Stamp Duty) Order 2024 as discussed below.
In other words, for residential property transactions, AVD ranging from HK$100 to 4.25% of the stated consideration or the value of the property (whichever is higher) will be levied. The AVD rates immediately before and after 28 February 2024 are set out below:

Rate at Part 1 of Scale 1 from 25 October 2023 to 27 February 2024: Flat rate of 7.5%

Rate at Part 1 of Scale 1 on or after 28 February 2024:

Amount or value of the consideration or value of the property (whichever is higher)Rate at Part 1 of Scale 1
ExceedsDoes not exceed
 HK$3,000,000HK$100  
HK$3,000,000HK$3,528,240HK$100 + 10% of excess over HK$3,000,000
HK$3,528,240HK$4,500,0001.5%  
HK$4,500,000HK$4,935,480HK$67,500 + 10% of excess over HK$4,500,000
HK$4,935,480HK$6,000,0002.25%  
HK$6,000,000HK$6,642,860HK$135,000 + 10% of excess over HK$6,000,000
HK$6,642,860HK$9,000,0003.00%  
HK$9,000,000HK$10,080,000HK$270,000 + 10% of excess over HK$9,000,000
HK$10,080,000HK$20,000,0003.75%  
HK$20,000,000HK$21,739,120HK$750,000 + 10% of excess over HK$20,000,000
HK$21,739,120 4.25%  

Procedurally speaking, the Government will introduce the Stamp Duty (Amendment) Bill 2024 (the “Bill”) to the Legislative Council following the delivery of the Budget. In the meantime, to enable property purchasers to benefit from the said measures as soon as possible, the Chief Executive has exercised his statutory power to make the Public Revenue Protection (Stamp Duty) Order 2024 (the “Order”) under the Public Revenue Protection Ordinance (Cap. 120) to give full force and effect of law to the Bill before its enactment as long as the Order remains in force.

Potential impacts on the property market

All “spicy measures”, which aimed at curbing speculation and stabilizing housing prices, often deterred potential buyers due to the high additional costs involved in property transactions. With the removal of the “spicy measures”, we anticipate that the residential property market will experience a surge in activity. With the potential buyers having higher affordability, it is expected that the demand for residential flats will increase and property prices will potentially be driven up in the short term.

In particular, given that the BSD (which targeted purchasers who are non-Hong Kong permanent residents) is now removed, more foreign and Chinese investors might be attracted to invest in Hong Kong residential properties. Moreover, the abolishment of the SSD (which targeted reselling of residential properties within 24 months of acquisition) is likely to further stimulate the local second-hand property market.

Holding residential properties by corporate vehicles

One point to note is that the removal of “spicy measures” might prompt some potential purchasers (in particular, properties on the expensive end of the spectrum) to purchase residential properties through limited companies which are established for the sole purpose of holding the properties. When it comes to selling the properties, instead of selling the properties directly, property owners can sell the entire shares of the companies which hold the properties, to the purchasers.

The obvious advantage of using this strategy is that the stamp duty for the sale and purchase of shares of a limited company in Hong Kong is currently only 0.2% of the stated consideration or the value of the company (which essentially is the value of the property when the property is the only asset of the company), whichever the higher.

For example, if an individual decides to purchase a residential property valued at HK$7,000,000 after 28 February 2024, the calculations of stamp duty payable under different situations are as follows:

  • If the purchaser purchases the residential property directly, the stamp duty payable would be HK$7,000,000 x 3% = HK$210,000
  • If the residential property is held by the seller through a limited company whose only asset is the property, and the purchaser acquires the entire shares of the company, the stamp duty payable would be HK$7,000,000 x 0.2% = HK$14,000

Although the savings in stamp duty can be quite considerable by using the abovementioned strategy, it should be noted that:

  • Transfer of shares in a limited company involves more complicated procedures as compared to ordinary property transactions. Most notably, lawyers will be more heavily engaged in such equity transactions for procedures such as (i) due diligence to ensure that the company has not, amongst others, incurred any liabilities, and (ii) drafting the share purchase agreement including various representations, warranties and indemnity, to protect the interest of the purchaser. Hence, the associated legal fees would most likely be higher than that incurred in an ordinary property transaction.
  • After acquiring the company, the purchaser would have to pay annual maintenance costs to the company secretary and accountant for, among others, filing annual returns, convening annual general meetings, preparing audited accounts and doing tax filings to fulfill the statutory requirements.
  • Owing to legal complexity and risks as explained in point (1) above, banks usually do not offer mortgages for property transactions camouflaged by share transfers. Purchasers therefore need to be prepared to pay 100% of the purchase price of the company/property by the time the transaction is completed. A bridging loan might be required in the circumstances.

In view of the high associated costs that may be incurred in a share purchase transaction as discussed above, normally speaking, only residential properties of a relatively high value will justify the use of a limited company to hold the property.


If you have any question regarding the topic discussed above, please contact our partner Victor Ng at victor.ng@oln-law.com or our senior associate Barbara Kwong at barbara.kwong@oln-law.com for further assistance.

Disclaimer: This article is for reference only. Nothing herein shall be construed as Hong Kong legal advice or any legal advice for that matter to any person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Filed Under: OLN, News, Tax Advisory

Oldham, Li & Nie is Ranked in Chambers Greater China Region 2024 Guide

January 22, 2024 by OLN Marketing

The newly released 2024 edition of Chambers Greater China Region Guide acknowledged Oldham, Li & Nie in Corporate/M&A and Family/Matrimonial practice areas. Additionally, the Guide has spotlighted four of our lawyers as leading figures in the region’s legal landscape.

Chambers Greater China Region 2024 ranked firm Oldham, Li & Nie

Comments from clients include:

  • “Oldham, Li & Nie are extremely professional and reliable. Their lawyers are worldly, knowledgeable and respectful.”
  • “They are able to give practical advice by considering the circumstances of our company and our company’s primary commercial objectives.”
  • “They are highly professional and well organised. They are very efficient and speedy with their work.”

The four Odham, Li & Nie lawyers recognized among the premier lawyers in the Greater China region are:

  • Gordon Oldham – Corporate/M&A
  • Tracy Yip – Corporate/M&A
  • Richard Healy – Dispute Resolution: Litigation
  • Stephen Peaker – Family/Matrimonial

To view the OLN’s full rankings, visit our profile on 2024 Chambers Greater China Region.

About Chambers Greater China Region Guide

Chambers and Partners interview every year thousands of lawyers, clients and third-party experts to evaluate law firms’ and lawyers’ reputation and expertise in all four jurisdictions of the Greater China Region: PRC, Hong Kong, Macau, and Taiwan. The Chambers Greater China Region rankings assess various factors, including technical legal skills, professionalism, customer service, and business acumen of the leading lawyers across the region.

Filed Under: OLN, Corporate and Commercial Law, Dispute Resolution, Family Law, News Tagged With: Corporate law, Award, Family law, Dispute Resolution

Oldham, Li & Nie Hires King & Wood Mallesons Counsel as Corporate & Commercial Partner

January 2, 2024 by OLN Marketing

We are delighted to announce that we have further strengthened our Corporate & Commercial practice by hiring a solicitor from King & Wood Mallesons (KWM).

Gary Lam Corporate & Commercial Lawyer Hong Kong

Gary Lam has served King & Wood Mallesons for the past 4 years, representing clients across a wide range of industry sectors, including advising State-owned enterprises, public and private companies in their cross-border transactions in Hong Kong and the PRC. He has solid experience in a variety of corporate and commercial matters, with a focus on mergers and acquisitions, joint ventures and compliance-related matters. He also advises on corporate finance, privatisation, cross-border transactions and general commercial work.

Gary started his career in 2000 at Mayer Brown, and spent 3 years at JunHe as an Associate, and 13 years at Reed Smith as an Of Counsel, before joining King & Wood Mallesons.

He is admitted as a solicitor in both Hong Kong and the United Kingdom (England and Wales).

Gordon Oldham, Senior Partner, commented “We are delighted that Gary is joining our firm. This new hire demonstrates our commitment to building a high performing and diverse team of talented lawyers with deep local knowledge. Gary’s extensive expertise and proven track record will undoubtedly further solidify our position in the legal market and grow our capabilities in corporate, M&A and compliance-related strategic areas”.

Filed Under: OLN, Corporate and Commercial Law, News

OLN Recommended by The Legal 500 Asia Pacific 2024

November 24, 2023 by OLN Marketing

We are delighted to share that Oldham, Li & Nie has been recognised by The Legal 500 in its 2024 Asia Pacific edition in four practice areas:

  • Commercial, Corporate and M&A – Tier 3
  • Domestic and International Corporate Tax – Tier 3
  • Private Client and Family – Tier 3
  • Restructuring and Insolvency – Firm to Watch
Legal 500 APAC LEADING FIRM 2024

We are proud for our 14 lawyers who have been recommended by the directory this year:

Gordon Oldham, Senior Partner

Richard Healy, Partner

Stephen Peaker, Partner

Paul Firmin, Partner

Tracy Yip, Partner

Pamy Kuo, Partner

Anna Chan, Partner

Simon Wong, Partner

Yvonne Kong, Partner

Jonathan Lam, Partner

Victor Ng, Partner

Barbara Kwong, Senior Associate

Ivan Lee, Senior Associate

Gareth Leung, Associate

Our Intellectual Property consultancy, OLN IP Services, has also received a recognition by The Legal 500 directory this year.

Legal 500 Asia Pacific 2024 edition

Published annually, The Legal 500 Asia Pacific provides unbiased commentary and insight into the legal marketplaces of 25 Asia Pacific jurisdictions.

These rankings are the results of comprehensive analysis of law firm submissions and interviews with General Counsels and private practice lawyers.

The Legal 500’s research team also identifies the “Firms to Watch” to recognise the best up-and-coming practices.

Filed Under: OLN, News

Parental Rights of Same Sex Couples

October 12, 2023 by OLN Marketing

The Hong Kong Court of First Instance has recently held in the landmark case of NF v R [2023] HKCFI 2233 that a genetic mother to a child that was born to a lesbian couple, is a “parent at common law”, which is a significant step towards the recognition of the parental rights of same sex couples.

Facts

A lesbian couple, B and R, met in Hong Kong and married in South Africa in 2019. B and R subsequently underwent a procedure in South Africa known as reciprocal in vitro fertilization (“RIVF”) or reception of oocytes from partner (“ROPA”), in which an egg was extracted from R and fertilised with sperms from an anonymous male donor to create an embryo. The embryo was then transferred to B’s uterus. The child K, was then born in Hong Kong by B.  

After K’s birth, B and R attempted to register themselves as K’s parents. However, only B was included as K’s mother on his birth certificate, with K’s father was marked only with asterisks.

The Honourable Madam Justice Au-Yeung observed that B, R and K have lived together as a family, and that K was loved, cared for and financially provided for by B and R. This observation was consistent with the findings in the International Social Investigation Report prepared in South Africa where the family was residing.  

B, as K’s next friend in law, applied for a declaration that R was K’s parent under section 6 of the Parent and Child Ordinance (Cap. 429) (“PCO”).

Issue

Whether R should be declared K’s parent pursuant to section 6 of the PCO

Parties’ submissions  

B argued that she was not seeking for R to be declared a second “mother” or a “father.” Instead, she was seeking for R to be declared a parent. B relied on the “always speaking” principle of statutory construction, in that societal and scientific change should be accommodated and a child‑focused and rights-based approach should be adopted in the interpretation of section 6 of the PCO. In doing so, B emphasised the right to equal protection of the law without any discrimination on the ground of birth (Article 22 of the Hong Kong Bill of Rights (“BOR”)) and to entitlement to protection as a minor without any discrimination on the ground of birth (Article 20 of BOR)

In opposition, the Secretary of Justice (“SJ”) argued that the proper interpretation of the PCO meant “parents” mean a “male father” and a “female mother.” Further, as K’s birth was by way of medical treatment, Part V of the PCO should apply to the effect that whilst R is the biological and genetic parent of K, only the gestational parent B would be regarded as K’s mother.

In reply, B argued Part V of the PCO did not apply, given that the procedure underwent by the parties i.e. RIVF, was not known to the Legislature at the time of enactment. Part V of the PCO was also specifically drawn to provide legal parentage on the gestational mother where there was a surrogate, and therefore did not provide for a situation where no surrogate was involved and the oocyte gametes are those of the female partner of the gestational mother. B also argued that the term “parent”, given its open nature and meaning under ordinary and common law, is non-gendered and non-marriage dependent.

Interpretation of section 6 of the PCO

The Court acknowledged that it should have the best interests of the child as its first and permanent consideration. However, as the declaration, if made, would not only affect K but also a class of children born in a similar situation, as well as bind the Government and all other persons, the Court found it more appropriate to approach this issue with regard to the legislative intent and principles of statutory interpretation.

The Court disagreed with B’s arguments as to the applicability of Part V of the PCO, reasoning that it applied to births resulting from medical treatment and is technology neutral, and was not limited to only apply to infertile heterosexual couples/partners. Section 11 of the PCO also “puts it beyond doubt that the gestational mother is to be regarded in law as the mother for all purposes”, to the effect that “the other woman is not to be regarded in law as not being the mother for any purpose.”

However, in taking into account English case law on the difference between natural and legal parents, the Court noted that there should be an “open mind on the definition of “parent” as societal norm and medical technology may change to enable people who could not be parents in the past now become able” and it should be “astute to the changing world where people build families in different manners other than through a married or heterosexual relationship.”

The Court also recognised that refusing to regard R as K’s parent would contradict the legislative purposes of the PCO, being “(1) To reduce legal disabilities associated with illegitimacy; (2) To provide equality at law for all children and to protect them against discrimination regardless of their parents’ marital status; and (3) To give effect to [Articles 20 and 22 of BOR]”. If the Court were to refuse the declaration, K would remain an illegitimate child of R and his birth would be discriminated against on the basis that “unlike other children, he does not have a co-parent, genetically linked to him, because R is another female and because of the sexual orientation of B and R“. The Court viewed this result to be absurd, as under the current state of the PCO, “the Legislature would rather presume a man who did not provide the sperms to be the father of a child born within wedlock [section 5(1) of the PCO], than to accept someone who is genetically linked to the child and psychologically and socially his parent to be the parent”.  

However, the Honourable Madam Justice Au-Yeung noted that it was the Court’s role to interpret as opposed to legislate. Whilst she had “every sympathy” for children who are in a similar situation, the Judge held that “the lacuna in legislation has to be filled by the Legislature”, and doing the best she could, she could only hold R to be a parent at common law.

Conclusion

Although further steps by the Legislature are necessary for formal recognition, this landmark judgment is a small but certain step towards the recognition of parental rights of a genetic mother where the child is born to a lesbian couple, and more generally, the parental rights of same sex couples.

As a matter of Hong Kong law, same sex marriages and civil unions are not recognised in Hong Kong. Whilst there are some limited legal rights afforded to same sex couples following several court decisions, at present, an unmarried mother cannot make an application under the Guardianship of Minors Ordinance (Cap. 13) for parental rights. It is therefore respectfully submitted that an amendment made for unmarried mothers should be rightfully identified as per the current societal norms.

Stephen Peaker has been the Partner heading up the Family Law Department at OLN since 2000, and is a Fellow of the International Academy of Family Lawyers (“IAFL”) and the former Vice Chairman of the Hong Kong Family Law Association (“FLA”). Stephen has been instructed on many leading cases in the areas of family law and trusts law. He also advises extensively in respect of trusts and wills, wealth protection and tax planning. Stephen is highly recommended by Chambers and Partners as a leading lawyer in Family / Matrimonial (International firms) in Chambers Greater China Region Guide 2023.

Yvonne Kong is a Partner in OLN’s Family Law Department, and has extensive experience in advising same sex couples on the legalities and formal documents necessary to ensure the non-gestational parent maintains his/her rights over the child, as well as providing specialist advice to fit the unique facts and circumstances of each case.

Lauren Ng is an Associate in OLN’s Family Law Department, and has worked on matters including divorce, children, ancillary relief and prenuptial agreements.

Phoenix Chan is an Associate in OLN’s Family Law Department, with experience in divorce, children and ancillary relief matters.

*This article is provided for information purposes only and does not constitute legal advice. Please seek professional legal advice before acting on the contents herein.

Filed Under: Family Law, News Tagged With: Parental rights, Same-sex couple

Compulsory Sale Litigation in Hong Kong: Process and Practical Tips

September 15, 2023 by OLN Marketing

In the fast-evolving landscape of Hong Kong’s real estate market, compulsory sale litigation stands as a crucial legal recourse, striking a balance between private property rights and the broader public interest. This legal process is governed by the Land (Compulsory Sale for Redevelopment) Ordinance and plays a pivotal role in facilitating urban redevelopment and addressing housing needs. In this article, we delve into the stages of compulsory sale litigation process in Hong Kong, shedding light on the procedures and implications, as well as practical tips for applicant and respondent teams.

What is the compulsory sale litigation process?

In general, the compulsory sale litigation process is akin to ordinary civil litigation, but with a strong focus on surveying expert evidence. In addition, respondents collaborate as a team with a coordinator, and their factual witnesses are usually not heavily challenged at trial. Site inspections of the subject lot occur during the first two days of trial. A significant portion of legal fees is allocated to expert fees (and counsel’s fees), and respondents generally receive costs if they successfully defend against the compulsory sale.

What are the main stages of compulsory sale litigation process?
1. Applicant Makes Offer

The Applicant is required to issue a pre-action offer letter to all remaining minority owners for acquiring their property.  The offered sum is normally based on the Applicant’s valuation expert report, and the valuation assessment will typically be provided together with the offer letter (but not the entire report).

2. Filing LDCS Application (Form 32)

If the minority owners refuse to accept the Applicant’s pre-action offer, Applicant would file a Notice of Application (Form 32) with the Lands Tribunal to commence the compulsory sales procedure and, inter alia, the full valuation report will be disclosed.  Mediation Certificate and Mediation Notice are normally served at the same time.

3. Filing Opposition (Form 33)

If minority owners choose not to accept the Applicant’s offer, they have to file a Notice of Opposition (Form 33) within 21 days.

The contents of the notice would set out the issues in dispute, including: –

  • Valuation;
  • Age and state of repair;
  • Reasonable step to acquire; and/or
  • No fair and reasonable offers made to minority owners.
4. Case Management Hearings

After filing of notice of opposition, Applicant may file an Application to List for Call-over Hearing. Applicant would: –

  • confirm with the Lands Tribunal as to service of roles
  • report the mediation progress with each Respondent
  • propose a set of case management directions

Proposed directions would include: –

  • Mediation
  • Respondents to agree to a single joint valuation expert
  • If state of repair is challenged, agreeing appointment of Building Condition Expert and Structural Engineering Expert
  • Exchange of witness statements and expert reports
  • Filing of rebuttal reports
  • Filing of updated Valuation Report

For Respondents, Lands Tribunal would appoint one party as the Coordinator. The Coordinator’s work will include: –

  • Liaising with experts;
  • Arranging inspection of respective Respondents’ flats;
  • Reporting case progress; and
  • Collection and payment of expert fees.
5. Pre-Trial Review Hearing

A Pre-Trial Review Hearing may be ordered to deal with: –

  • To confirm whether there are legal issues to be argued;
  • Usual trial preparation direction; and
  • Filing of updated valuation expert report on Redevelopment Value (RDV).

At this step, the Respondents may consider engaging joint Counsel.

6. Trial

If only valuation expert’s evidence is challenged, the case will be heard only by a Member (a qualified surveyor).  However, if legal issues are to be argued, the case will be heard by a Presiding Officer and a Member.  During the initial stages of the trial, typically the first or second day, the court may arrange a site inspection of the subject development, although not all individual flats may be inspected.  In most cases, witnesses as to facts (Respondents) will not be called for examination.  Instead, the examination predominantly centers around expert evidence and is highly technical.

7. Post-Trial

When a judgment is handed down, the Court would order: –

  • Whether there is an order for sale, and if so, what is the reserve price;
  • Appointment of trustees to conduct the sale; and
  • Costs.

The questions that minority owners would certainly ask: –

  • How much they will get after auction?

Put it very simply, the applied formula can be understood as follows: –

EUV of own unitXReserve Price=Owner’s entitlement
EUV of all units
  • When will be the auction?
  • When will they get the money?

Practical Tips for Managing Compulsory Sale Litigation Cases
For Applicant Teams:

  1. Prepare for Respondents’ Emotions – anticipate that Respondents might be upset and frustrated about the compulsory sale.
  2. Efficiently Acquire Minority Flats – strategize for the acquisition of minority flats to reach the required threshold for compulsory sale.
  3. Stay Updated on Market Trends – continuously monitor market trends and property values. Stay informed about current offers and potential counter-offers to anticipate Respondents’ negotiation positions.

For Respondent Teams:

  1. Expect Emotional Clients – be prepared to deal with clients who may be upset or distressed due to the compulsory sale.
  2. Property Maintenance – maintain your property in good repair and condition throughout the litigation process. A well-maintained property can positively impact valuation and negotiations.
  3. Rented Property – include a clause that addresses early termination or termination after judgment.
  4. Review Offers Continuously – act reasonably by consistently reviewing and assessing offers from the Applicant.
  5. Base your decisions on expert evidence to support your position.
  6. Collaborate with Surveying Experts – work closely with surveying experts to understand the variables and comparables used in property valuation.
  7. Explore the option of engaging legal counsel jointly
  8. Financial Preparedness – ensure you have sufficient funds available to cover legal expenses, expert fees, and any potential compensation.
  9. Document All Actions – keep meticulous records of all work done, correspondence, and negotiations.

Additionally, consider potential conflicts of interests, such as distinctions between commercial and residential use or the valuation of unauthorized building works. To address these conflicts effectively, consider obtaining separate legal representation and subjecting valuation experts to examination during the trial.

Disclaimer: This article is for reference only.  Nothing herein shall be construed as legal advice, whether generally or for any specific person. Oldham, Li & Nie shall not be held liable for any loss and/or damage incurred by any person acting as a result of the materials contained in this article.

Filed Under: Dispute Resolution, News Tagged With: Litigation, Dispute Resolution, Compulsory sale

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The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
Statistics
The technical storage or access that is used exclusively for statistical purposes. The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
Marketing
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.
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