Understanding Hong Kong’s Stamp Duty on Stock Transfers

Stamp duty in Hong Kong is a transaction tax levied on specific legal instruments, playing a crucial role in the territory’s financial and regulatory framework. For securities transactions, this duty applies primarily to documents that legally transfer the beneficial ownership of stock registered in Hong Kong. The obligation to pay stamp duty is determined by the nature of the legal instrument itself and the location of the shares’ registration, rather than the physical location of the parties or where the agreement is executed.

Administered by the Inland Revenue Department (IRD), stamp duty represents a key compliance requirement for entities involved in share transfers. The requirement is triggered specifically by a written agreement to transfer shares, typically involving the preparation and execution of an instrument of transfer and corresponding bought and sold notes. Without properly stamped instruments, the transfer cannot be legally registered in the company’s share register, making proper documentation and subsequent stamping an indispensable step in any share transfer process.

Current Stamp Duty Rates for Stock Transfers

Hong Kong’s stamp duty on stock transfers underwent a significant change in November 2023. Following the 2023 Policy Address delivered on October 25, 2023, the Legislative Council passed the Stamp Duty (Amendment) (Stock Transfers) Bill 2023 on November 15, 2023. The reduced rate came into operation on November 17, 2023, returning to the rate that existed before August 1, 2021.

The stamp duty is calculated on an ad valorem basis, applied to the higher of either the consideration paid for the shares or their market value at the time the transfer instrument is executed. The total stamp duty liability is shared equally between the buyer and seller involved in the transaction.

Section 45 Relief for Intra-Group Transfers

Section 45 of the Stamp Duty Ordinance provides significant relief from stamp duty for qualifying intra-group transfers. This relief is available for instruments transferring a beneficial interest in Hong Kong stock or immovable property between associated bodies corporate, allowing corporate groups to restructure without incurring substantial stamp duty costs.

Qualifying as Associated Bodies Corporate

To qualify for Section 45 relief, the transferring entities must meet the definition of “associated bodies corporate.” The law provides two pathways to establish this association:

• Parent-Subsidiary Relationship: One body corporate must be the beneficial owner of not less than 90% of the issued share capital of the other body corporate
• Common Parent Structure: A third body corporate must be the common beneficial owner of not less than 90% of the issued share capital of both the transferor and transferee

Critical Requirement: Issued Share Capital

Recent landmark court decisions have clarified a fundamental requirement for Section 45 relief: both the transferor and transferee must have issued share capital. In the case of John Wiley & Sons UK2 LLP and Wiley International LLC v The Collector of Stamp Revenue [2025] HKCFA 11, decided on June 16, 2025, the Hong Kong Court of Final Appeal unanimously held that:

• Section 45 relief applies only to bodies corporate that have issued share capital in its ordinary company law meaning
• Limited liability partnerships (LLPs) and similar entities without share capital do not qualify for the relief
• Members’ capital contributions or participation interests that are merely analogous to shares do not meet the definition of “issued share capital”
• Legislative amendment, not judicial interpretation, would be required to extend relief to entities without share capital

As a result of this decision, the Stamp Office has placed on hold all Section 45 relief applications involving hybrid entities with only interests or units similar to share capital, such as US limited liability companies (LLCs) and Dutch cooperatives.

Holding Period Requirements

To maintain Section 45 relief, strict holding period requirements must be satisfied:

Application Procedures for Section 45 Relief

Taxpayers seeking Section 45 relief must follow specific application procedures outlined in the IRD’s Stamping Procedures and Explanatory Notes on “Intra Group Relief” (IRSD124). The application process involves:

• Submission of the original transfer instrument to the Stamp Office
• Provision of supporting documentation demonstrating the 90% ownership relationship
• Evidence of the holding period requirements (both past and commitment to future)
• Company structure charts and share ownership documentation
• Statutory declarations confirming compliance with all relief conditions

The Adjudication Process

When uncertainty exists regarding stamp duty liability or the availability of relief, taxpayers can seek formal guidance through the adjudication process administered by the Collector of Stamp Revenue.

What is Adjudication?

Adjudication is a formal procedure whereby any person may request the Collector of Stamp Revenue to express an opinion on:

• Whether an executed instrument is chargeable with stamp duty
• The amount of stamp duty payable (if chargeable)
• Whether specific relief provisions apply to a transaction

Adjudication Requirements and Procedures

Upon payment of the adjudicated stamp duty amount, instruments stamped under section 13(2) of the Stamp Duty Ordinance will be endorsed as duly stamped. This endorsement is essential for registration purposes, as the Land Registry will return any instrument that may be liable to stamp duty if it has not been properly stamped or adjudicated.

Appeals Against Stamp Duty Assessment

If a taxpayer disagrees with a stamp duty assessment, they may appeal the decision. However, specific procedures must be followed:

• Application Timing: Written application to postpone payment must be submitted to the Collector within 14 days from the assessment date
• Intent Declaration: The appellant must clearly indicate their intention to lodge an appeal
• Security Requirement: Sufficient securities (normally in the form of a bank guarantee) must be provided to support the postponement request

Practical Considerations for Corporate Groups

Planning Intra-Group Transfers

Corporate groups considering intra-group transfers in Hong Kong should carefully evaluate several key factors:

• Entity Structure: Ensure both transferor and transferee are bodies corporate with issued share capital, as the recent Court of Final Appeal decision excludes LLPs, LLCs, and similar entities from Section 45 relief
• Ownership Documentation: Maintain comprehensive documentation of the 90% ownership relationship, including historical records covering the required 2-year pre-transfer period
• Timing Considerations: Plan transfers to ensure the 2-year pre-transfer ownership requirement is satisfied before executing the transfer
• Post-Transfer Commitments: Ensure the corporate group can maintain the 90% ownership for the required 2-year post-transfer period to avoid clawback of relief
• Alternative Structures: If the group includes entities without share capital, consider alternative restructuring methods or seek professional advice on available options

Impact of Recent Court Decisions

The John Wiley case has significant implications for multinational corporate groups with complex structures:

• Groups with LLP or LLC holding companies cannot use Section 45 relief for transfers involving those entities
• Applications involving hybrid entities are currently on hold pending potential legislative changes
• The Court of Final Appeal noted that a significant number of pending applications are affected by this decision
• Any extension of relief to entities without share capital requires legislative amendment by the Hong Kong Legislature
• Some jurisdictions, such as Singapore, have explicitly extended intra-group relief to LLPs through legislative amendment

Compliance Best Practices

To ensure compliance with Hong Kong stamp duty requirements and maximize the benefit of available reliefs, corporate groups should:

• Engage professional tax advisors familiar with Hong Kong stamp duty law and recent developments
• Conduct thorough due diligence on group structure and ownership relationships before initiating transfers
• Maintain detailed corporate records, including share registers, transfer instruments, and ownership documentation
• Consider adjudication in cases of doubt regarding stamp duty liability or relief eligibility
• Monitor legislative developments, as the Court of Final Appeal has indicated that reform may be appropriate
• Ensure timely stamping of all chargeable instruments to avoid penalties and interest
• Implement internal controls to track the 2-year holding periods required for Section 45 relief

Registration and Land Registry Requirements

The interaction between stamp duty compliance and share registration requires careful attention. The Land Registry will not register unstamped instruments and maintains procedures to ensure compliance:

• If the Collector of Stamp Revenue advises that an instrument may be liable to stamp duty, the Land Registry will return the instrument to the lodging party
• The instrument must be stamped or adjudicated before registration can proceed
• Properly stamped instruments are essential for completing the transfer in the company’s share register
• In cases of doubt, submitting the instrument for adjudication before lodging it for registration can prevent delays

This article provides general information about Hong Kong stamp duty on intra-group stock transfers and should not be construed as professional tax advice. Entities considering intra-group transfers should consult with qualified tax professionals regarding their specific circumstances and the application of current laws and regulations.