Did you know that savvy Hong Kong investors can legally avoid paying stamp duty on certain stock transactions? With the current rate at 0.2% total (0.1% each for buyer and seller), understanding the exemptions available under Hong Kong’s Stamp Duty Ordinance could save you thousands of dollars in trading costs. Whether you’re a retail investor, corporate treasurer, or financial professional, this comprehensive guide reveals the key exemptions that could transform your investment strategy.

Hong Kong’s Stock Stamp Duty: Current Landscape

Hong Kong’s stamp duty on stock transactions is a fundamental component of the territory’s financial market infrastructure. Governed by the Stamp Duty Ordinance and administered by the Inland Revenue Department (IRD), this tax applies to transfers of shares listed on the Stock Exchange of Hong Kong (SEHK). The government’s decision to reduce rates in November 2023 reflects its commitment to maintaining Hong Kong’s competitiveness as a global financial hub.

How Stamp Duty is Calculated

The stamp duty calculation follows a straightforward but important rule: it’s based on the higher of the consideration (purchase price) paid for the shares or the market value of the shares being transferred. This ensures that transactions cannot be artificially undervalued to reduce tax liability.

Top 10 Stamp Duty Exemptions for Hong Kong Investors

Hong Kong’s Stamp Duty Ordinance provides several valuable exemptions that can significantly reduce transaction costs. Understanding these exemptions is crucial for both individual investors and corporate entities looking to optimize their financial strategies.

1. Exchange Traded Funds (ETFs)

Since 2015, Hong Kong has exempted all ETFs listed on the Hong Kong Stock Exchange from stamp duty. This strategic move has positioned Hong Kong as a leading Asia-Pacific market for ETF trading. The exemption covers:

• All ETFs listed on HKEX
• Leveraged and inverse products
• ETFs with Hong Kong stock value not exceeding 40% of the underlying portfolio
• Tokenized ETFs (since 2024, supporting digital asset development)

2. Section 45 Intra-Group Relief

Section 45 provides a crucial exemption for transfers between associated corporate entities within the same group. This relief facilitates corporate restructuring without imposing unnecessary tax burdens.

Landmark 2025 Court Ruling: John Wiley & Sons Case

In June 2025, the Hong Kong Court of Final Appeal issued a landmark ruling that significantly clarified the scope of Section 45 relief. The Court unanimously held that:

• Section 45 relief only applies to associated bodies corporate with issued share capital
• UK limited liability partnerships (LLPs), US limited liability companies (LLCs), and similar hybrid entities do not qualify for Section 45 relief
• Members’ capital contributions or participation interests that are merely analogous to shares do not meet the definition

3. Market Maker Exemptions

To support market liquidity, Hong Kong provides specific exemptions for market makers:

• ETF Market Makers: Exempt for activities in allotting/redeeming ETF shares (effective August 1, 2020)
• Dual-Counter Market Makers: Exempt for transfers relating to dual-counter stocks
• Options Market Makers: Exempt for jobbing business activities

4. Stock Borrowing and Lending Relief

Certain stock borrowing and lending transactions may be exempted from stamp duty, facilitating securities lending activities essential for short selling and market liquidity. All statutory conditions must be met to qualify.

5. Spousal Transfers

Transfers of shares between legally married spouses are typically exempt from stamp duty, facilitating straightforward inter-spousal asset management without additional tax burdens.

6. Inherited Shares and Estate Distributions

Transfers made by a personal representative (executor or administrator) to a beneficiary under a will or intestacy are often exempt, provided the transfer represents legitimate estate distribution rather than a disguised sale.

7. Mandatory Provident Fund (MPF) Schemes

Instruments of transfer of units under MPF Schemes are exempt from stamp duty, supporting Hong Kong’s retirement savings framework.

8. Unit Trust Schemes and Open-Ended Funds

Stamp duty exemption applies to instruments of transfer relating to indirect allotment or redemption of units under unit trust schemes or shares under open-ended funds.

9. Islamic Finance Instruments

Sections 47E, 47F, and 47G provide stamp duty relief on transfers of bonds and certain instruments issued under Islamic finance structures, where specified conditions are met.

10. REIT Shares or Units

Transfers of Real Estate Investment Trust (REIT) shares or units may be exempt under specific conditions outlined in the Stamp Duty Ordinance.

Compliance Requirements and Penalties

Proper stamping of share transfer documents is a legal requirement in Hong Kong. Failure to comply can result in severe penalties.

Late Stamping Penalties

The consequences of late stamping can be severe. Late stamping penalties can reach up to 10 times the original duty, making timely compliance essential. Share transfer documents should typically be stamped within 30 days of execution.

Claiming Exemptions: Step-by-Step Process

1. Step 1: Submit proper documentation to the Stamp Office
2. Step 2: Demonstrate that all statutory conditions are satisfied
3. Step 3: Maintain comprehensive records supporting the exemption claim
4. Step 4: Comply with all reporting requirements and deadlines

Strategic Planning for Investors

Understanding stamp duty exemptions enables investors to structure transactions more tax-efficiently. Here are key strategic considerations:

• Portfolio Construction: Consider utilizing ETFs where appropriate to eliminate stamp duty costs
• Corporate Restructuring: Plan intra-group transfers carefully, ensuring compliance with Section 45 requirements
• Estate Planning: Structure estate distributions to maximize available exemptions
• International Structures: Be aware that hybrid entities (LLPs, LLCs) do not qualify for Section 45 relief following the 2025 Court ruling

Hong Kong’s stamp duty exemptions represent valuable opportunities for investors to optimize their financial strategies. From the complete exemption for ETFs to the carefully structured relief for intra-group transfers, understanding these provisions can lead to substantial tax savings. However, with the landmark 2025 Court ruling clarifying the limitations of Section 45 relief, and with penalties for non-compliance reaching up to 10 times the original duty, professional guidance is more important than ever. Whether you’re trading ETFs, planning corporate restructuring, or managing estate distributions, staying informed about Hong Kong’s evolving stamp duty landscape is essential for financial success.