Imagine saving over HK$3.7 million on a HK$50 million property purchase. That’s exactly what became possible when Hong Kong abolished its punitive property taxes in February 2024. In the most significant stamp duty reform in over a decade, Hong Kong has transformed from having one of Asia’s most restrictive property tax regimes to one of its most competitive. This seismic shift isn’t just about residential property—it fundamentally changes how businesses approach mergers, acquisitions, and corporate structuring in Hong Kong’s dynamic market.

The End of an Era: Abolition of Demand-Side Management Measures

For over 13 years, Hong Kong’s property market operated under a complex web of “demand-side management measures” designed to cool an overheating market. These included three additional layers of stamp duty on top of the standard Ad Valorem Duty. However, in a dramatic policy reversal announced in the 2024-25 Budget, the Financial Secretary declared these measures were no longer necessary.

What Was Abolished on February 28, 2024?

• Buyer’s Stamp Duty (BSD): Previously 7.5% (reduced from 15% in October 2023) for non-permanent residents and corporate buyers
• Special Stamp Duty (SSD): Previously charged at rates up to 20% for properties sold within 6 months, creating holding period restrictions
• New Residential Stamp Duty (NRSD): Previously 7.5% (reduced from 15% in October 2023) for Hong Kong permanent residents buying additional properties

Current AVD Scale 2 Rates (2024-2025)

From February 28, 2024, all buyers of residential properties—whether Hong Kong permanent residents, non-residents, individuals, or corporations—are subject only to Ad Valorem Stamp Duty at Scale 2 rates. This creates a level playing field and significantly reduces the tax burden for many categories of buyers.

Stock Transfer Stamp Duty: The November 2023 Reduction

While not part of the February 2024 property reforms, another significant stamp duty change occurred in November 2023. The Chief Executive announced in the 2023 Policy Address that the stamp duty rate on Hong Kong stock transfers would be reduced to enhance market competitiveness.

Current Stock Transfer Stamp Duty Rates

For transfers of Hong Kong stock executed on or after November 17, 2023:

• Buyer’s duty: 0.1% of the consideration or market value (whichever is higher)
• Seller’s duty: 0.1% of the consideration or market value (whichever is higher)
• Total stamp duty: 0.2% (down from the previous 0.26%)
• Plus: HK$5 fixed duty per instrument

Transformative Impact on M&A Transactions

The different stamp duty treatments of share transfers versus direct asset purchases create powerful structuring considerations for M&A transactions, particularly those involving property-holding companies. The differential is now more pronounced than ever.

Share Transfers vs. Asset Acquisitions: A Stark Comparison

Practical Considerations for Share Transfers in M&A

While the stamp duty savings can be substantial, share acquisitions of property-holding companies involve additional complexities that must be carefully evaluated:

1. Due Diligence: More extensive legal and financial due diligence is required when acquiring a company rather than just an asset
2. Contingent Liabilities: The buyer assumes all existing and potential liabilities of the target company
3. Transaction Documents: Share purchase agreements typically include extensive representations, warranties, and indemnities, increasing legal costs
4. Valuation Issues: Stamp duty is charged on the higher of stated consideration or market value, with complex valuation rules for unquoted shares
5. Ongoing Corporate Obligations: The buyer must maintain the corporate entity with associated compliance costs

Real-World Impact: Case Studies

Case Study 1: Foreign Corporate Buyer

Scenario: A Singapore-incorporated company purchases a residential property in Hong Kong for HK$50 million.

Case Study 2: HKPR Buying Second Property

Scenario: A Hong Kong permanent resident who already owns one property purchases a second residential property for HK$12 million.

Strategic Implications for Different Stakeholders

For Property Investors

• Enhanced Liquidity: The removal of SSD eliminates holding period restrictions, allowing investors greater flexibility in portfolio management
• International Competitiveness: The abolition of BSD places foreign buyers on equal footing with local purchasers
• Multiple Property Holdings: Local investors can now build property portfolios without incurring NRSD on each subsequent acquisition
• Market Timing: Investors can respond more quickly to market conditions without tax penalties for short holding periods

For M&A Practitioners

• Structure Optimization: The substantial stamp duty differential creates strong incentives for share-based acquisitions of property-holding companies
• Cost-Benefit Analysis: While share acquisitions offer stamp duty savings, practitioners must balance these against higher transaction costs and assumption of liabilities
• Group Restructuring: Intra-group relief provisions enable tax-efficient reorganizations prior to sales or other corporate events
• Cross-Border Transactions: The alignment of Hong Kong’s residential property stamp duty with more investor-friendly regimes enhances Hong Kong’s attractiveness

Compliance Essentials and Anti-Avoidance

Stamping Requirements and Deadlines

Despite the simplified rate structure, compliance obligations remain critical:

• Property Transactions: Instruments must be stamped within 30 days of execution (or within 30 days of arrival in Hong Kong if executed overseas)
• Share Transfers: Stock transfer instruments must be stamped before registration or within 30 days of execution, whichever is earlier
• Penalties: Late stamping attracts penalty tax of up to 10 times the duty payable, plus a maximum fine of HK$10,000
• Adjudication: Where valuation or liability is uncertain, instruments may be submitted to the Stamp Office for adjudication

Recent December 2024 Amendments

On December 20, 2024, the Stamp Duty Legislation (Miscellaneous Amendments) Ordinance 2024 was gazetted, introducing two additional stamp duty waivers effective December 21, 2024:

REIT Stamp Duty Waiver

Previously, a stamp duty of 0.1% for both the buyer and seller (0.2% total) was payable on the transfer of shares or units of Real Estate Investment Trusts. The Amendment Ordinance now provides a complete waiver of stamp duty on REIT transfers, bringing Hong Kong in line with practices in most international markets including Mainland China, Japan, Singapore, and the United States.

Options Market Makers Relief

The December 2024 amendments also waive stamp duty on transactions related to options market makers’ jobbing business, supporting market liquidity and the development of Hong Kong’s derivatives market.

The abolition of BSD, SSD, and NRSD in February 2024 represents the most significant reform to Hong Kong’s stamp duty regime in over a decade. Combined with the November 2023 reduction in stock transfer duty and the December 2024 REIT exemptions, these changes fundamentally alter the tax landscape for property transactions and M&A activities. As Hong Kong continues to compete as a premier international financial center, these reforms signal a more business-friendly approach designed to attract investment, enhance market liquidity, and support economic growth. Investors, businesses, and advisors should stay informed of these changes and their implications for transaction structuring and tax planning.