Property Holding via Company: Tax Myths & Realities

With the Hong Kong government's full "spice removal" in 2024, the stamp duty system for residential property transactions has undergone significant changes, including the abolition of Buyer's Stamp Duty (BSD) and New Residential Stamp Duty (NRSD). Against this backdrop, the costs associated with purchasing residential properties in the name of a limited company have decreased compared to the past, thus attracting renewed attention from some investors.

Common market views include: "Renting out properties under a company name allows for more flexible tax deduction arrangements" and "Transferring company shares in the future can reduce stamp duty." These statements hold true in certain circumstances, but they also involve practical limitations and potential risks.

This article introduces the basic tax arrangements and related considerations for holding properties under a company name.

Changes in the Stamp Duty System

Before the policy adjustments, purchasing residential properties under a company name generally required additional stamp duties (such as BSD and NRSD), resulting in a higher overall tax burden.

After the relevant measures were abolished in 2024:

• Whether individuals or companies purchase residential properties
• Generally calculated based on "Ad Valorem Stamp Duty"

The current maximum tax rate is approximately 4.25% (Scale 2 rates)

However, note that:

• Tax rates are subject to government policy adjustments
• Specific tax liability depends on the transaction amount and applicable tax rate

Myth 1: Can stamp duty be completely avoided by "transferring company shares"?

When a property is held by a company, future disposal options include:

• Direct sale of the property
• Or transfer of shares in the company holding the property

✔ Tax differences in share transfers

• Property transfer: The buyer must pay Ad Valorem Stamp Duty based on the property price (up to about 4.25%)
• Share transfer: Generally requires payment of stock stamp duty (currently 0.13% per party, totaling 0.26%, calculated on the share transfer price or market value)

👉 In some cases, the overall tax burden may be lower than directly transferring the property

⚠️ Practical factors to note

While share transfers may be tax-advantageous, actual implementation involves several limitations:

1. Potential liability risk

Acquiring company shares usually means:

• Assuming the company's existing assets and liabilities

Therefore, buyers generally need to conduct detailed due diligence, including:

• Tax status
• Contractual obligations
• Potential legal risks

👉 Relevant professional fees can be substantial

2. Financing arrangement restrictions

In practice:

• Banks are more cautious about mortgage arrangements for "share transfer transactions"
• Buyers may need a higher down payment or alternative financing methods

👉 Financing terms typically differ from those for ordinary residential mortgages

3. More complex transaction process

Compared to ordinary property transactions:

• Share transfers involve company-level reviews
• Documentation and procedures are more cumbersome

👉 Completion time may be longer, requiring professional assistance

Myth 2: Is renting out under a company always more tax-efficient than under an individual?

When leasing a property, different tax systems apply to individuals and companies:

Individual (Property Tax)

• Tax rate: Standard 15% (calculated on net assessable value)
• Deductible items include:
  • Rates (if paid by the owner)
  • 20% statutory allowance for repairs and outgoings

👉 Generally, actual expenses (such as mortgage interest) are not directly deductible (unless opting for Personal Assessment)

Company (Profits Tax)

• Two-tiered tax rate:
  • First HKD 2 million profit: 8.25%
  • Remaining profit: 16.5%

👉 Deductible items include:

• Mortgage interest
• Management fees
• Repair costs
• Insurance and related operating expenses

📌 Deductions must comply with the principle of "incurred in the production of chargeable profits"

Hidden costs (often overlooked)

Holding a property under a company typically involves the following ongoing costs:

• Business registration fee
• Company secretary service fee
• Annual statutory audit (auditing) fees

👉 If rental income is low, these costs may offset some tax benefits

Holding a property under a limited company does offer certain flexibility in tax and transaction arrangements, such as:

• More deductible expenses
• In specific cases, lower tax costs for share transfers

However, such arrangements also involve:

• Higher compliance and administrative costs
• More complex transaction and financing arrangements
• Potential legal and financial risks

Before making a decision, it is advisable to consider individual investment goals and financial circumstances, and consult professional advice to make an appropriate arrangement.