Ever wondered if you can use a nominee to buy Hong Kong property and avoid stamp duty? Think again. Hong Kong’s stamp duty system operates on a fundamental principle: it’s not about who holds the legal title, but who truly benefits from the property. Whether you’re an investor considering nominee arrangements or a professional advising clients, understanding how stamp duty applies to these structures is crucial in today’s simplified but still complex property tax landscape.

Understanding Nominee Property Arrangements in Hong Kong

In Hong Kong’s dynamic property market, nominee arrangements sometimes emerge as a consideration for various reasons – from privacy concerns to estate planning. At its core, a nominee arrangement involves one party (the nominee) holding legal title to a property, while another party (the beneficial owner) enjoys the true ownership rights – control, income, and ultimate disposal power.

The Legal vs. Beneficial Owner Distinction

Understanding this distinction is critical:

• Legal Owner (Nominee): The person whose name appears on title documents and holds legal title
• Beneficial Owner: The person who controls the property, receives income from it, and makes decisions about its use and disposal
• Stamp Duty Trigger: Under Hong Kong’s Stamp Duty Ordinance, stamp duty is triggered by the transfer of beneficial ownership, regardless of how legal title is structured

Hong Kong’s Current Stamp Duty Framework (2024-2025)

Major Changes Since February 2024

Hong Kong’s stamp duty regime has undergone significant simplification:

• February 28, 2024: The government abolished all demand-side management measures, including Buyer’s Stamp Duty (BSD) and Special Stamp Duty (SSD)
• Current Framework: Only Ad Valorem Stamp Duty (AVD) now applies to residential property transactions
• Simplified System: This represents a return to a simpler stamp duty regime focused on property value rather than buyer characteristics

Current Ad Valorem Stamp Duty (AVD) Rates

As of 2024-2025, AVD on property transfers is charged at progressive rates based on property value:

Note: AVD is calculated on the higher of the purchase price or market value of the property at the time of transfer.

How Stamp Duty Applies to Nominee Arrangements

Declaration of Trust and Stamp Duty Liability

When a beneficial owner executes a declaration of trust in favor of a nominee, creating a trust relationship where the nominee holds property for the beneficial owner, stamp duty is payable on this instrument as if a conveyance had taken place.

The Stamp Duty Ordinance specifically addresses trust arrangements:

• Where beneficial ownership transfers through a trust instrument, duty is payable as though there was an outright sale
• The IRD examines the substance of the transaction, not merely its legal form
• Both the initial creation of the nominee arrangement and any subsequent transfer of beneficial interest may trigger stamp duty

Nomination by Purchasers: Special Rules

A common scenario involves a purchaser under an agreement for sale nominating another person to take up the assignment before completion. The stamp duty treatment has specific rules:

Requirements for Nomination Exemptions

To qualify for favorable stamp duty treatment on nominations, the following conditions must be met:

1. Close Relative Relationship: The nominee must be a close relative (parent, spouse, child, sibling)
2. Acting on Own Behalf: The nominee must be acting on his/her own behalf (i.e., will be the beneficial owner)
3. No Other Property: The nominee must not own any other residential property in Hong Kong at the time of nomination
4. Otherwise: Additional AVD is chargeable on the nomination instrument

Anti-Avoidance Provisions Remain Active

Despite the abolition of BSD and SSD, Hong Kong’s Stamp Duty Ordinance retains robust anti-avoidance provisions aimed at preventing stamp duty circumvention through nominee arrangements:

• Substance Over Form: The IRD examines the true nature of transactions, looking beyond legal documentation to identify the actual beneficial owner
• Constructive Trusts: Where an uncompleted contract of sale exists, the vendor is deemed by law to hold property on trust for the purchaser, triggering stamp duty liability
• Trust Instruments: Any instrument creating a trust relationship over property is treated as a conveyance for stamp duty purposes
• Series of Transactions: Multiple linked transactions may be viewed collectively to determine the true beneficial ownership transfer

Practical Implications for Property Transactions

When Stamp Duty is Triggered in Nominee Arrangements

Key Considerations for Parties Involved

When considering or entering into nominee property arrangements, parties should be aware of:

• Double Taxation Risk: Improper structuring may result in stamp duty being paid both on the initial acquisition and on the establishment of the nominee relationship
• Declaration Requirements: Purchasers claiming exemptions must declare they are acting “on their own behalf” – false declarations carry serious consequences
• Documentary Evidence: The IRD may require comprehensive documentation proving the nature of the relationship and beneficial ownership
• Timing Considerations: When nominee arrangements are established matters – pre-completion nominations are treated differently from post-acquisition trusts
• Market Value Assessments: Where consideration is nominal or unclear, the IRD will assess stamp duty based on market value

Special Cases and Exemptions

Bare Trusts and Nominee Shareholding

In certain corporate structures, shares may be held through nominee arrangements. For share transfers in Hong Kong companies:

• Stamp duty is currently 0.20% of the transfer amount (effective November 1, 2023)
• The duty is split equally between buyer and seller (0.10% each)
• Section 27(5) of the Stamp Duty Ordinance provides that no ad valorem stamp duty is chargeable on transfers made for nominal consideration where no beneficial interest passes
• This exemption applies where shares are transferred but beneficial ownership remains unchanged (e.g., restructuring within the same beneficial ownership)

Intra-Group Transfers (Section 45 Relief)

Section 45 of the Stamp Duty Ordinance provides relief for transfers of Hong Kong immovable property between associated bodies corporate. Two companies are “associated” if:

• One is the beneficial owner of at least 90% of the issued share capital of the other; or
• A third company is the beneficial owner of at least 90% of the issued share capital of both

Compliance and Enforcement

Stamping Obligations and Timelines

All instruments liable to stamp duty must be stamped within the prescribed time limits:

• For instruments executed in Hong Kong: Within 30 days of execution
• For instruments executed outside Hong Kong: Within 30 days of first receipt in Hong Kong
• Penalties for Late Stamping: Penalty tax applies to late stamping, calculated based on the amount of duty payable and the length of delay

Consequences of Non-Compliance

Failure to properly comply with stamp duty obligations can result in:

• Penalty Tax: Significant penalties for late stamping or understamping
• Unenforceability: Unstamped instruments are inadmissible as evidence in Hong Kong courts
• Criminal Prosecution: Serious cases may result in criminal charges under the Stamp Duty Ordinance
• Reassessment: The IRD may reassess stamp duty liability if nominee arrangements are discovered to have been misrepresented

Navigating Hong Kong’s stamp duty rules for nominee arrangements requires careful consideration of both current simplified rates and enduring anti-avoidance principles. While the abolition of BSD and SSD has simplified the overall landscape, the fundamental rule remains: stamp duty follows beneficial ownership. Whether you’re structuring a property acquisition or advising clients, always prioritize substance over form and seek professional guidance to ensure compliance with Hong Kong’s evolving stamp duty regime.