Introduction
In our previous newsletter “Stamp Duty on Property Transactions – an Update”, we have outlined three stamp duties which may be levied on property transactions – the Special Stamp Duty, the Buyer’s Stamp Duty and the Ad Valorem Stamp Duty (“AVD”). These stamp duties are targeted measures, designed to curb short-term speculative activities and give priority to the home ownership needs of Hong Kong Permanent Residents. 

The Stamp Duty (Amendment) (No.2) Ordinance 2014 (the “Ordinance”) was published in the Gazette on 25 July 2014. The Ordinance introduced two scales of AVD rates to be levied on transactions for residential and non-residential properties. This measure will have retrospective effects on applicable transactions on or after 23 February 2013 and this article seeks to discuss certain aspects of the AVD under the Ordinance.

Scope
In general, all transactions in respect of residential and non-residential properties that took place on or after 23 February 2013 will be subject to the higher AVD rates (“Scale 1 Rates”). Having said that, in line with the Government’s policy to prioritize the home ownership needs of Hong Kong Permanent Residents, the Ordinance provides that acquisition of a residential property by one/more Hong Kong Permanent Resident(s) acting on his/their own behalf and who is/are not beneficial owner(s) of any other residential property in Hong Kong at the time of acquiring the concerned residential property will be excepted from paying the AVD at Scale 1 Rates and the old AVD rates (“Scale 2 Rates”) would be applicable. Please refer to “Stamp Duty on Property Transactions – an Update” which set out a list of major exceptions provided by the Ordinance.

AVD rates
The table below shows the Scale 1 Rates and Scale 2 Rates (subject to the marginal relief):

Refund mechanism for Hong Kong Permanent Residents replacing properties
The Ordinance introduced a refund mechanism to the effect that Scale 2 Rates would be levied on the second residential property acquired by Hong Kong Permanent Resident(s) who have sold the original residential property, thereby only temporarily owning two residential properties. The refund mechanism is subject to the following conditions:

1.         Payment of AVD according to the Scale 1 Rates shall be made within 30 days after the date of the agreement for sale and purchase of the second residential property (the “Agreement”); and

2.         The purchaser(s) is/are Hong Kong Permanent resident(s) and has/have entered into an agreement for sale and purchase to dispose of his/their original and only other residential property in Hong Kong within 6 months from the date of execution of the conveyance on sale of the second residential property; and

3.         A refund application is made to the Inland Revenue Department within 2 years after the date of the Agreement, for refund of an amount equals to the difference between payments made according to the Scale 1 Rates and the Scale 2 Rates on the second residential property (the “Extra Amount”); or

4.         In the case of the second residential property being an uncompleted development, if the execution of the conveyance on sale of the second residential property is after 22 months from the date of the Agreement, the refund application for the Extra Amount shall be made to the Inland Revenue Department within 2 months from the date of the conveyance on sale of the original residential property.

Exception arrangements for acquisition of a residential unit together with a car parking space
Car parking spaces are considered as non-residential properties and transactions in respect of car parking spaces will be subject to AVD at Scale 1 Rates. The Ordinance provides that AVD at Scale 2 Rates shall be charged on the sale of car parking spaces provided that the following conditions are met:

1.         a residential property and a car parking space are acquired by a single instrument; and

2.         the purchaser(s) is/are Hong Kong Permanent Resident(s) who is/are acting on his/their behalf and is/are neither the beneficial owner(s) of any other residential property nor the beneficial owner(s) of any other car parking space in Hong Kong.

Under this exception, the total consideration of the single instrument will be charged with AVD at Scale 2 Rates. As such, purchasers shall consider carefully whether to acquire the residential property and the car parking space under a single instrument or to execute separate instruments. In most cases, even with the AVD charged at Scale 1 Rates, the AVD payable for the car parking space under a separate instrument may be lower as the smaller amount in consideration means that a lower band of the Scale 1 Rates will be applicable.

Illustration
Consideration for a residential property (the “Residential Property”): $10,000,000

Consideration for a car park space (the “Car Park Space”): $1,000,000

Assuming the purchaser is entitled to claim the exception, the AVD payable for the purchase of the Residential Property and the Car Park Space shall be computed as follows:

Practical notes
Prior to 25 July 2014, applicable instruments were stamped and AVD were charged at Scale 2 Rates.  For those who have entered into transactions in respect of residential and non-residential properties that took place on or after 23 February 2013 where Scale 1 Rates were applicable, the liable party shall pay the additional stamp duty on or before 25 August 2014. For transactions which were entitled to claim for an exception from AVD charged at Scale 1 Rates, the applicant should submit relevant documents in support of the exception for the Stamp Office’s consideration on or before 24 October 2014.

For enquiries, please contact our Property Department:

E: property@onc.hk

T: (852) 2810 1212

W: www.onc.hk

F: (852) 2804 6311

19th Floor, Three Exchange Square, 8 Connaught Place, Central, Hong Kong

Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.