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Easy Guide To Stamp Duty and Shares Transfers in Hong Kong

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stamp duty hong kong transfer of shares

Running a company is quite tricky. You’ll have to deal with several important concepts, such as stamp duty Hong Kong transfer of shares. Business owners must know how to handle these concepts, especially shares transfer.

The responsibility of overseeing the process of stamp duty Hong Kong transfer of shares often falls onto the company secretary.

Thus, when looking for someone to fill the position, whether you use an in-house secretary or outsourced secretarial services, it is important that the company secretary candidate understands the process of stamp duty Hong Kong transfer of shares.

The composition of a company’s shareholders will determine its ownership. After the initial distribution of shares, there may be certain instances when the company is expected to transfer shares. This may occur after introducing a new partner or exiting a partner from the company.

Regardless of the reason, this piece will teach you everything you need to know about stamp duty Hong Kong transfer of shares.

What is a share transfer? Simply put, a share transfer process involves the transfer of ownership of shares between individuals. This transfer may also be between different entities. Many people need to understand new share issuance and share transfer.

The distribution of new shares occurs when a company is newly formed, but the transfer of shares occurs in companies that are already existing. Now that you have a better understanding of share transfer, let’s break down the stamp duty Hong Kong transfer of shares process step by step.

Stamp Duty Hong Kong Transfer Of Shares: Reasons For Transferring Shares

Under certain conditions, you may wish to alter the share structure of your organization. Most companies alter their share structure by creating new shares or adjusting the portions of the currently existing shares.

Many Hong Kong companies alter their share structure by transferring shares. A share transfer will occur when current shares are sent from an existing shareholder to another individual. This transfer may be in the form of a sale or a gift.

When a shareholder sells or gifts his shares to another person, this process is described as a share transfer. While most businesses usually begin operations with a definite number of shareholders, the number is bound to increase or decrease over time.

There are several reasons why this could happen. They include:

  • A shareholding director resigns or is removed from his position in the company
  • Transfer of shares between existing shareholders when a group reorganization occurs
  • When they wish to leave the company and gain returns for their investment
  • When shares are gifted to a spouse or family member
  • When shareholders are restructuring the business. This may occur when shares are transferred from a parent entity to a new subsidiary
  • When shareholders change the existing portion of shares due to new profit sharing or common ownership arrangement

Stamp duty is the charge you’ll pay to the Hong Kong government when you transfer your desired amount of the company’s stock.

The Hong Kong Companies Ordinance states that all private limited companies must add a section explaining their stamp duty Hong Kong transfer of shares restrictions in their Article of Association.

A few conditions must be fulfilled before a share transfer can occur. These conditions are to be treated in the following steps:

  1. Check that pre-emptive rights listed in the company’s Article of Association have been satisfied or waived. You may also obtain shareholder approval for the transfer of the impending shares.
  2. Create any necessary paperwork to complete the transfer of the shares.
  3. Prepare documents required for stamp duty by the Hong Kong government. These documents may include; contract notes, sales and purchases agreements, management accounts, resolutions, etc.
  4. Stamp all documents.

Stamp Duty Hong Kong Transfer Of Shares: Transfer Procedure

A shares purchase agreement is often used to determine the terms of a share transfer with a third party. The contract of a shares purchase agreement will specify important details of the transfer, including prices and terms of the stamp duty Hong Kong transfer of shares.

It may also include any assurances by the transferor regarding the company’s finances and liabilities. In many cases, the process of shares transfer can be set up within three to five working days.

The following conditions must be fulfilled before the stamp duty Hong Kong transfer of shares can be completed:

  • The board of directors must approve the share transfer
  • The board of directors can refuse the share transfer
  • Shares must initially be offered to existing shareholders according to the stipulations of the pre-emptive rights

Stamp Duty Hong Kong Transfer Of Shares: Documents Required For Transferring Shares

The transfer of shares process is pretty straightforward. However, you’ll need to submit certain documents to facilitate the stamp duty Hong Kong transfer of shares. These documents will be submitted to the Inland Revenue Department. They include:

  • Application letter for the transfer of the shares
  • Latest audited financial statement
  • Certified management accounts for the company and its subsidiaries
  • Sales and Purchases Agreement
  • An official document explaining the company’s dividend-sharing policies (where applicable)
  • Copy of the company’s article of association
  • Details of the transfer instrument
  • Details of the land property
  • Number of shares transferred
  • Share purchase agreement (for equity transfers)

Stamp Duty Hong Kong Transfer Of Shares: Factors To Consider Before Transferring Shares

Before your shares are transferred to another party or entity, you may check any of the following conditions for the stamp duty Hong Kong transfer of shares:

  • Check for any limitations or restrictions about share transfer that are stipulated in the article of association
  • Check the shareholders’ agreement for any restrictions or limitations on share transfer
  • Ensure that the board or general meeting has passed a final resolution on the proposed share transfer
  • Check that other shareholders have been offered the shares in question

Stamp Duty Hong Kong Transfer Of Shares: Refusal To Transfer Shares

Section 151 of the Companies Ordinance stipulates that if the board of directors does not approve the stamp duty Hong Kong transfer of shares, the board should send a notice to the transferee and transferor within two months after the shares transfer process was initiated.

The notice will explain the notice of refusal. Following the receipt of the notice, the transferor and transferee may request an explanation of the reasons for the refusal. After 28 days, the company must respond to the person who requested the reasons for refusal.

Another alternative is to register the transfer. If the transferor and transferee fail to send a notice of refusal, they will be fined for their actions. All you have to do is send a statement of the register of transfer or to register the transfer.

Anyone liable for this issue will be fined HKD 25,000 (level 4 fine). However, you’ll be charged HKD 700 for each day. Before initiating and finalizing a stamp duty Hong Kong transfer of shares, you must verify the tax implications you may be subject to.

Depending on your learning, you can take necessary legal steps to reduce your tax obligations. Verifying tax implications may be the first step to improving your financial situation. A common share transfer tax implication is the fee for stamp duty Hong Kong transfer of shares.

Stamp Duty Hong Kong Transfer Of Shares: Stamp Duty and Fees

When a company transfers shares, the Hong Kong government – through the Inland Revenue Department – will levy a fee on the total value or the company’s worth. The Inland Revenue Department will charge their fee on whichever value is higher.

No Hong Kong company is exempt from paying stamp duty on shares transfer. Stamp duty is charged at 0.26% of the total shares consideration or the value of its net shares. The transferor and transferee will be charged 0.13% each.

The stamp duty Hong Kong transfer of shares instruments is capped at HKD 5. More information on stamp duty rates are available on the IRD’s official website. The total value of a Hong Kong company is measured as the net asset value (net assets minus liabilities).

Based on the information above, a Hong Kong company that transfers 100% of shares worth $500,000 will pay stamp duties worth HKD 1,300. In this type of scenario, the transferor and transferee will be subject to a charge of $650.

Stamp duty is an important levy for Hong Kong companies. Therefore, you need to ensure the transaction is completed. All businesses in Hong Kong should take these levies seriously, and all requirements should be met.

The stamp duty Hong Kong transfer of shares may take longer to calculate if the company’s value isn’t expressed in Hong Kong Dollars. In this scenario, the IRD would need to convert the other currency to HKD.

Stamp Duty Hong Kong Transfer Of Shares: Late Stamp Duty Penalties

If you fail to pay this levy, the stamp duty office penalty fees for it. The value of your penalty fees will depend on the length of the delay. Let’s look at the different penalty fees for the stamp duty Hong Kong transfer of shares process matched with their duration:

  • Less than one month – Double the value of the stamp duty
  • 2 months or less – Four times the stamp duty payable
  • Longer than two months – Ten times the owed stamp duty

How Can We Help – Our Company Secretarial Services

The process of stamp duty Hong Kong transfer of shares can be lengthy and have different challenges. But when you hire Premia TNC, the process will be simplified completely.

When you hire us, we will guide you through the incorporation and stamp duty Hong Kong transfer of shares process. We also have to provide you with experts – a company secretary and an accountant. Premia TNC has a team of experts that will help you transfer shares quickly and easily.

We’ll also help you handle the stamp duty for whoever purchases your shares. All our professionals are experts in their trade. They have extensive experience and know what you need to enjoy a hassle-free journey till the entire process is complete.

Regardless of your business type, we have experts ready to help you. Many businesses attempt to handle the entire stamp duty Hong Kong transfer of shares process but fail due to the bulky nature of the task.

While you may have a good idea about what to do, it’s easy to miss out on essential details. You may miss a deadline or forget to submit the required documents. Premia TNC is your best bet to avoid any risk of failure. We’ll save you from incurring the costs of an error-filled transfer.

With us, you have nothing to fear. We’ll assist you every step of the way. We must ensure that everything goes smoothly without any hitches or avoidable challenges. Premia TNC ensures that the stamp duty Hong Kong transfer of shares remains a relatively straightforward process.

Stamp Duty Hong Kong Transfer Of Shares – Frequently Asked Questions

1. How do I transfer shares in Hong Kong?

As part of the stamp duty Hong Kong transfer of shares process, you’ll have to submit the above-mentioned documents to Hong Kong Inland Revenues Department and pay the stamp duty fee to complete the stamp duty Hong Kong transfer of shares.

Then, complete the change of the register of members and register of transfer. The company shall show the relevant shareholding change on the latest Annual Return after the share transfer and submit it to the Companies Registry.

2. Are there any shares that are exempt from stamp duty?

You’ll be exempt from paying stamp duty if the stamp duty Hong Kong transfer of shares is a gift where you don’t have to make any payment to receive the shares or when the share was willed to you as an inheritance.

Also, there’s no stamp duty Hong Kong transfer of shares needed to be paid between partners when signing up for a civil partnership or shares that are distributed due to a divorce or dissolution of a civil partnership.

There’s no the stamp duty Hong Kong transfer of shares payable on shares transferred between trustees. Finally, the stamp duty rate doesn’t apply to settlement distribution to shareholders on company liquidation.

3. How do you avoid paying the stamp duty Hong Kong transfer of shares?

There’s no legal way to avoid paying stamp duty on a share transfer, especially if your shares qualify for the levy of the stamp duty Hong Kong transfer of shares. Failure to remit stamp duty payables will result in penalties.

The only time you’ll not be expected to pay the stamp duty Hong Kong transfer of shares is if your share transfer doesn’t qualify as one of those to be taxed.

4. What are the charges for late payment of stamp duty Hong Kong transfer of shares?

Anyone who defaults on the stamp duty Hong Kong transfer of shares will be subject to penalties. Penalty fees are usually dependent on the duration of the default payment.

If you fail to make payment on time, you may have to pay up to 10 times your stamp duty Hong Kong transfer of shares payable.