Understanding Hong Kong Stamp Duty on Securities

Stamp duty in Hong Kong is a transactional tax applied to specific documents, known as “chargeable instruments,” that formalize certain transactions. Its application primarily covers agreements related to property conveyances and transfers of Hong Kong stock. This duty is a crucial consideration for both individuals and corporations involved in these types of transactions within the territory or concerning assets located here, irrespective of where the document is executed.

The scope of stamp duty varies based on the asset class involved. For property, it is levied on instruments like sale and purchase agreements and subsequent assignments (conveyances). For stocks, it applies to instruments of transfer that facilitate the change of ownership for shares listed on the Hong Kong Stock Exchange or shares in Hong Kong private companies. Understanding which specific documents trigger this duty is fundamental for effectively managing its impact on investment and portfolio decisions.

Current Stamp Duty Rates for Stock Transfers

As of November 17, 2023, the Hong Kong government reduced the stamp duty rate on stock transfers from 0.13% to 0.1% per party, bringing the total rate from 0.26% to 0.2%. This change was announced in the Chief Executive’s 2023 Policy Address delivered on October 25, 2023, as part of efforts to bolster the competitiveness of Hong Kong’s stock market.

The duty is calculated ad valorem (based on value) on the consideration or the market value of the stock, whichever is higher. Both the buyer and the seller are responsible for paying their respective portions of the stamp duty.

Legal Strategies to Minimize Stamp Duty

Investors and portfolio managers can employ several legitimate strategies to minimize stamp duty costs while maintaining compliance with Hong Kong’s Stamp Duty Ordinance. These strategies focus on utilizing exemptions, structuring transactions efficiently, and timing considerations.

1. Exchange-Traded Funds (ETFs)

The most significant exemption available to investors is the complete waiver of stamp duty on ETF transactions. Since February 13, 2015, all classes of shares or units of ETFs have been exempt from stamp duty, regardless of whether the ETF is transacted through the Stock Exchange of Hong Kong or over-the-counter. This exemption also extends to leveraged and inverse products.

Strategic Application:

• Instead of purchasing individual Hong Kong stocks, investors can gain market exposure through Hong Kong-listed ETFs that track the Hang Seng Index or sector-specific indices
• This strategy is particularly beneficial for large portfolio allocations where the 0.2% stamp duty on individual stocks would represent significant costs
• ETF market makers also benefit from stamp duty exemption on the sale and purchase of Hong Kong stock during ETF creation and redemption processes (effective August 17, 2020)

2. Derivatives and Structured Products

Derivative contracts are exempt from Hong Kong’s stamp duty since they do not involve the physical transfer of shares. The duty is levied only on transfers of shares, meaning cash-settled derivatives and index-based basket instruments are not taxed.

Exempt Derivative Products:

• Warrants (derivative warrants)
• Callable Bull/Bear Contracts (CBBCs)
• Inline warrants
• Stock options and futures contracts
• Cash-settled contracts for difference (CFDs)

Strategic Application:

• Active traders can use derivatives to gain leveraged exposure to Hong Kong stocks without incurring stamp duty
• Portfolio hedging can be implemented using options and futures without stamp duty costs
• Synthetic positions can be created using combinations of derivatives to replicate stock ownership

3. Stock Connect Programs

The Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs allow investors to trade eligible mainland China shares through Hong Kong brokers. While these programs do involve stamp duty, they provide access to a broader investment universe and can be part of a diversified strategy that balances stamp duty costs across different markets.

4. Section 45 Intra-Group Relief

For corporate investors and business groups, Section 45 of the Stamp Duty Ordinance provides significant relief for intra-group transfers of Hong Kong stock or immovable property between associated bodies corporate.

Eligibility Requirements:

• One body corporate must be the beneficial owner of not less than 90% of the issued share capital of the other; or
• A third body corporate must be the common beneficial owner of not less than 90% of the issued share capital of both bodies corporate
• Both entities must be bodies corporate with issued share capital (as clarified by the Court of Final Appeal in John Wiley & Sons UK2 LLP v The Collector of Stamp Revenue [2025])

Important Note: Following recent case law, UK limited liability partnerships (LLPs), LLCs, and other entities without “issued share capital” in the ordinary company law meaning do not qualify for Section 45 relief. However, such entities can serve as parent entities holding companies with issued share capital that do qualify for relief.

5. Strategic Timing and Transaction Structuring

While stamp duty on stock transfers must be paid regardless of holding period (unlike property transactions), investors can optimize their trading patterns to minimize cumulative stamp duty costs:

Portfolio Rebalancing Strategies:

• Reduce trading frequency by adopting a buy-and-hold strategy where appropriate
• Consolidate multiple small transactions into larger, less frequent trades
• Use ETFs for tactical allocations and individual stocks for long-term strategic positions
• Consider the total cost of ownership, including stamp duty, when evaluating investment returns

Stamping Deadlines:

• Contract notes for stock transfers must be stamped within 2 days of completing the transaction in Hong Kong
• For transactions completed outside Hong Kong, the deadline is 30 days
• Timely stamping avoids penalties and ensures proper legal documentation

Comparative Analysis of Stamp Duty Minimization Strategies

Additional Exemptions and Special Situations

Beyond the primary strategies outlined above, investors should be aware of other stamp duty exemptions and special situations:

Dual-Counter Stock Market Making

Following the 2022 Policy Address, stamp duty is waived for certain transactions relating to dual-counter stock made by market makers. This exemption, similar to existing mechanisms for ETFs and derivatives, was implemented through the Stamp Duty (Amendment) Bill 2022, gazetted on November 18, 2022.

REIT Transfers

Transfers of Real Estate Investment Trust (REIT) shares or units may qualify for certain exemptions, particularly in the context of market-making activities.

MPF Unit Transfers

Instruments of transfer of units under Mandatory Provident Fund (MPF) Schemes are exempt from stamp duty.

Unit Trust and Open-Ended Fund Companies

Stamp duty exemptions apply to instruments of transfer relating to indirect allotment or redemption of units under unit trust schemes and shares under open-ended fund companies.

Compliance and Documentation Requirements

While minimizing stamp duty is a legitimate objective, investors must ensure full compliance with all relevant regulations and documentation requirements:

• Proper Documentation: All transactions must be properly documented with contract notes and transfer instruments
• Timely Stamping: Adhere to the 2-day deadline for Hong Kong transactions or 30-day deadline for overseas transactions
• Accurate Valuation: Stamp duty is calculated on the higher of consideration or market value; ensure accurate reporting
• Relief Applications: For Section 45 intra-group relief, follow the proper application procedures outlined in IRSD124
• Record Keeping: Maintain comprehensive records of all transactions and exemption claims for audit purposes

Recent Policy Developments (2024)

It is important to note that while stock transfer stamp duty rates were reduced in 2023, property stamp duty underwent significant changes in 2024. The Financial Budget for 2024/25, released on February 28, 2024, announced the complete abolition of Special Stamp Duty (SSD), Buyer’s Stamp Duty (BSD), and New Residential Stamp Duty (NRSD) on property transactions. This demonstrates the Hong Kong government’s ongoing willingness to adjust stamp duty policies to support market competitiveness.

Investors should stay informed about potential future changes to securities stamp duty policies, as the government continues to balance revenue needs with market development objectives.

Disclaimer: This article is for informational purposes only and does not constitute legal, tax, or financial advice. Stamp duty regulations and rates are subject to change. Investors should consult with qualified tax professionals and legal advisors before implementing any stamp duty minimization strategies. The information presented is current as of December 2025 based on publicly available sources.