How to get the Best Deal while Buying Hong Kong Properties through a Company?

Hong Kong has been a popular destination of setting up businesses due to its wide-ranging business sectors, low tax rates and clean management. The reasons why people register a company in Hong Kong vary. Some businessmen register a company in order to buy properties in Hong Kong.  

So what are the pros and cons of buying a property in Hong Kong? And how does it work? Let’s find out from the article below.

House mortgage loan buy sell price real estate investment money

Mr. Chen is a senior management in Shenzhen. He would like to buy a property in Hong Kong as he believes it is worth investing in. But he could not buy one in Hong Kong in his own name due to property buying restrictions.

After he understood the advantages buying a property through a company in Hong Kong, Mr. Chen decided to buy a property with this method. After he registered a Hong Kong company and opened a local bank account, Mr. Chen successfully bought a property in Hong Kong.

The method of buying a Hong Kong property through a company has existed for a long time which is a mature and reasonable way to avoid tax while buying a property.

Part 1

Buying a Property through a Company

The procedure:

  1. Register a Hong Kong company which usually costs a few thousand dollars
  2. Buy a property through the ordinary procedure
  3. When the property is sold, as long as you transfer the company together with the property to the buyer, you could avoid paying Ad Valorem Stamp Duty (AVD) of up to 15% of the property price. It is important to note that the buyer also has to pay 15% Buyer’s Stamp Duty (BSD) according to the current policy in Hong Kong.

Part 2

Buying a Property though Company Share Transfer

If you buy a property through transferring shares of the company, you only have to pay 0.2% stamp duty (the seller and the buyer each pay 0.1%, making it 0.2% tax on stock transfer). You could save 15% BSD and 15% AVD compared to buying a property directly in the name of a company.

On the other hand, you could buy properties on the balance sheet of a shell company through transferring shares or changing company directors. Share sale of a company appears to be merely share transfer which doesn’t involve properties on the surface. As long as you include the property on the company balance sheet, you could transfer the property from the seller to the buyer through company share transfer, hence avoid paying 15% BSD. 

Property transactions through “company share transfer” allows the buyer to avoid paying the stamp duty and the seller to save profits tax. It is a good method if it proceeds well especially after the government introduced Special Stamp Duty (SSD).

Let’s take a look at the procedure of company share transfer:

  1. Look for the right property on market which owner is a company and would like to sell the company
  2. Sign a share transfer contract (Both sides decide on the deposit and the transaction date at a law firm)
  3. Pay the deposit
  4. Employ an accounting firm to verify if the company has other debts or assets
  5. Pay the property price (pay to the law firm representing yourself)
  6. Apply for a mortgage loan from a bank (the loan-to-value ratio must follow the requirements of the regulatory body)

If you would like to know more about the procedure in detail, you could enquire online at the bottom of the article.

Part 3

How to Avoid Traps of “Company Share Transfer”

It’s important to note that there are a few risks involved in the process of “company share transfer”.

Risk 1:

It is hard to manage the time needed for the transaction as the due diligence has to be carried out by a professional team

Property transactions under a person’s name involve signing of a provisional agreement for sale and purchase which is a legally binding document. This could offer protection to both the buyer and seller. Any party rejecting to buy or sell is a breach of the contract and has to make compensation according to the contract terms. Usually the seller has to pay a sum equivalent to twice the amount of the deposit or the buyer loses the deposit. The one who breaches the contract also has to pay the commission of the real estate agents of both parties.     

“Company share transfer” involves certain risks as the buyer would employ a law firm and an accounting firm to practice due diligence when both parties agree to make a property transaction through share transfer. If the property price keeps rising, the seller may not want to proceed with the transaction and may be reluctant to give the title deed or the accounting documents. Then the lawyer and the accountant could not carry out a review.       

Risk 2:

You may have to pay high profits tax

If you sell a property under your name after it appreciates by a wide margin, you do not have to pay “capital gains tax” of the margin you gain. But if you own a company, when the company goes bankrupt or sells the property to a person, you may face high profits tax. Company profits tax is calculated based on the property price when the company initially bought it instead of your purchase price. For example, the company bought the property for $2 million, and then you bought the property for $15 million. After some time, the property appreciates to $20 million. When you pay the debt under the bankruptcy order or when you sell the property to a person, you have to pay profits tax which is calculated by deducting the initial purchase price ($2 million) from the current price ($20 million), making it $18 million.   

Risk 3:

You may face difficulties while applying for mortgage

Buying a property through share transfer involves complicated legal issues and risks. Therefore usually banks are reluctant to approve a mortgage. There may be exceptions, but it is better if the buyer could prepare sufficient money. Some banks offer bridging loan (with higher interest rate), and the loan would become a mortgage usually 2-4 weeks after the transaction day. Buyers are advised to consult the bank in advance to understand the highest LTV ratio and other feasible methods.

Risk 4:

Cost of buying and operating a company

When you buy a property which is owned by a company, the lawyer would review the property rights and the financial status of the company on behalf of the buyer. Therefore the legal fee of buying a company property would usually be higher than directly buying a property. In the long run, the cost of operating a company would range from $10,000 to $40,000 (including the fee of auditing the financial statements). The actual expense depends on the service employed and the number of the properties owned by the buyer.

To conclude, buying a property through share transfer could save tax but the procedure would be more complex which better suit experienced buyers. Of course, there are lots of advantages registering a company in Hong Kong apart from the convenience in property buying and discounts it involves. For example, you could save operating taxes through running a Hong Kong company. Please do not hesitate to contact Midland Chat If you would like to know more about property buying.

相关文章 :

【Reduce Property Market Curb Measures】Down Payment... 【Reduce Property Market Curb Measures】Down Payment and Mortgage Repaym...
【Acquiring Your First Property】 An 8-Step Guide t... 【Acquiring Your First Property】 An 8-Step Guide to Purchasing a Secon...
What should you do if you receive lower valuation ... Banks usually evaluate the market value of a property based on differe...
Comprehensive Buyers’ Guide to Obtain 90 percent H... Tom: "The government has relaxed mortgage insurance schemes, thus pavi...
An All-in-One Guide for Applying a Mortgage with 9... An All-in-One Guide for Applying a Mortgage with 90% LTV Ratio
分享: