Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I am trying to get the full financial picture of buying in Hong Kong, where real estate prices are sky high. What is the property tax there like?
A: Hong Kong property prices are indeed high. The average price of a new home is now HK$16.08 million (US$2.05 million), representing an 18% increase in the first quarter of 2018 (compared to the previous quarter), according to data from Ricacorp Properties in April.
Add in Hong Kong’s stamp duties and buying a home is a hefty investment.
“Foreigners who come to work in Hong Kong usually rent,” said Doris Chik, senior tax manager at Deloitte China. “Otherwise they are subject to very high stamp duties.”
Hong Kong’s property tax is actually levied on income-producing properties, Ms. Chik said. But there are a small “government rates” for homeowners to pay based on the estimated value of the property.
Even if the home is not rented, rates for homeowners are 5% of “the estimated annual rental value of a property,” Ms. Chik said. However, for the next year, the fees of up to HK$2,500 (US$320) per quarter will be waived as part of the 2018-19 Financial Budget that went into effect earlier this month, she said.
That means if the rate for a property is less than HKD$ 2,500, there will be no fee. For a home that has a fee of HK$3,000 (US$382), the owner would only need to pay HK$500 (US$64) because HK$2,500 (US$318) would be waived, according to Ms. Chik.
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However, there are several stamp duties for everyone to be aware of when purchasing a home in Hong Kong, she said.
The first is an ad valorem stamp duty, or AVD, which is 15% of the purchase price or the market value of the property, whichever is greater, Ms. Chik said. This is applicable to all sales, although Hong Kong residents who don’t own other properties are able to get this tax reduced.
The buyer’s stamp duty, or BSD, is charged to foreign buyers only, adding another 15% in taxes onto the transaction. This stamp duty was first established in 2010 to dissuade foreign investors from snapping up all the real estate.
The BSD also applies to companies buying real estate, she pointed out. That means foreign buyers can’t get around the duty by doing the transaction through a corporation.
A third tax, the special stamp duty, or SSD, was put in place to try to keep speculation in check, she said. Essentially a flip tax, it is levied if someone tries to “resell within three years.” It is charged at three different rates. If someone sells a property within six months of purchase, the rate is 20%. If the sale is within one year, the rate is 15% and, if the sale is within two years, the rate is 10%.
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