Company share transfer stamp duty is a type of tax stipulated by the Stamp Duty Ordinance (Chapter 117) of the Laws of Hong Kong, commonly known as a stamping fee. In Hong Kong, document contracts for company transfers, stock trades, or property leases all require the payment of stamp duty. With years of experience in handling company sales and stamping, General Accounting explains how to calculate share transfer stamping fees and the importance of stamping share transfer documents, deadlines, and penalties. Learn the 7 keywords and precautions for company sale contracts (Bought/Sold Notes and Instruments of Transfer).
Which documents require stamping?
There are 4 main categories of documents that require stamp duty:
- Conveyance on sale (Property deeds)
- Agreement for sale of immovable property
- Lease of immovable property (Lease agreement)
- Transfer of Hong Kong stock
Why is stamping company share transfers important?
Only stamped share transfer documents are legally valid, representing the formal completion of the company share transfer process by both the buyer and the seller. Many people do not understand the importance of stamping, assuming that downloading a template online, modifying the information, and signing it completes the process.
Based on past experience, it is usually when opening a corporate bank account that people discover the sale contract was not stamped, leading to the rejection of the account opening because the so-called new buyer is not recognized as the company owner. Both parties then have to spend time and money hiring a professional company secretary to re-sign the contracts and go through the stamping process again.
7 Keywords for Stamping Company Sale Contracts
Both the buyer and seller of a company share transfer must sign a Bought Note, a Sold Note, and an Instrument of Transfer (commonly known as the sale contract), and then have them stamped by the Stamp Office of the Inland Revenue Department. Before signing, you must understand these 7 keywords:
1. Instrument of Transfer
The Instrument of Transfer is one of the documents in a company sale contract that requires stamping. The stamping fee for the Instrument of Transfer is $5, and it includes information such as the buyer and seller details, the number of shares transferred, and the date of the transfer.
2. Bought Note and Sold Note
The Bought Note and Sold Note are two documents for company share transfers that require stamp duty. Generally, they are combined on the same sheet for stamping and are simply referred to as the Bought/Sold Notes or the company sale contract.
The content is largely the same as the Instrument of Transfer, but it adds two items: the number of shares and the consideration paid.
3. Transferee
The Transferee is the party buying the company shares, which can be a natural person or a limited company. If you are purchasing shares, you must ensure you are listed as the transferee and check that the name and details are correct.
Case Study: We once assisted a transferee in correcting a share transfer process because the client handled the sale themselves but confused the transferee and the transferor, only discovering the issue when opening a bank account. Fortunately, it was an “amicable split,” and General Accounting assisted the transferee in correctly transferring the shares from the seller to the buyer.
4. Transferor
The Transferor is the party selling the company shares, i.e., the original shareholder. If you are selling shares, you must ensure you are listed as the transferor and that the name and address are correct.
5. Consideration
Consideration can be simply understood as the purchase price of the company transfer, and it is also one of the standards for calculating company share transfer stamp duty.
6. Number of Shares
The number of shares refers to the quantity of shares being traded. For example, if a company has 10,000 shares, transferring 30% is equivalent to transferring 3,000 shares.
7. Date
The date is the day the share transfer occurs, which is when the transferor and transferee sign the Bought/Sold Notes and the Instrument of Transfer. Note: Late stamping will result in penalties.
How is the share transfer stamping fee calculated?
The share transfer stamping fee is calculated based on the consideration or the net asset value (NAV) of the company corresponding to the shares involved, whichever is higher. Amounts less than $1 are rounded up to $1, plus a $5 stamping fee for the Instrument of Transfer.
Calculating Stamp Duty Based on Consideration
The stamping fee is 0.1% each for the Bought Note and the Sold Note based on the consideration (the purchase price of the company transfer).
Example: For the sale of a shelf company where the purchase price is $1 and the company has no assets, the buyer and seller each pay $1 + $5 = $7.
Calculating Stamp Duty Based on Net Asset Value (NAV)
If the company has already begun operations or holds assets, the latest financial statements must be provided. The Stamp Office will calculate the stamp duty at 0.2% of the company’s net asset value multiplied by the percentage of equity transferred.
Example: Party A sells 10,000 shares to Party B, representing a 50% interest in the company. Assuming the company’s net asset value is $1,000,000, the stamp duty is calculated as follows:
Stamp Duty = ($1,000,000 * 50%) * 0.1% = $500
This means both the buyer and seller each pay $500 in stamp duty.
Time Limit for Stamping Share Transfers
The deadline for stamping is calculated from the date the Bought Note and Sold Note are signed:
Transfer completed in Hong Kong: Stamping must be done within 2 days of the signing date.
Transfer completed outside Hong Kong: Stamping must be done within 30 days of the signing date.
Late Stamping Penalties
Within 1 month: 2 times the amount of stamp duty;
Over 1 month but within 2 months: 4 times the amount of stamp duty;
Over 2 months: 10 times the amount of stamp duty.
Precautions for Stamping Share Transfers
- Appoint a licensed secretarial firm as an independent third party to ensure an impartial stance during the transfer process;
- Before taking over a company, commission an accountant to perform due diligence to confirm if there are any liabilities, such as outstanding government fees;
- Arrange for an independent CPA to conduct a statutory corporate audit;
- Understand the Articles of Association to ensure the share transfer process complies with the company’s regulations;
- Prepare the company registers, including the Register of Directors, Register of Shareholders, etc.;
- Properly preserve the original stamped Bought/Sold Notes and Instruments of Transfer.
