Share Transfer and Stamp Duty How Businesses can Complete in Hong Kong

Explaining Share Transfer Stamp Duty for Companies in Hong Kong

A share transfer is the exchange of shareholding from the existing shareholder to the new buyer or existing shareholders in a corporation once he decides to sell or give his shares.

These are the reasons behind most transfers of shares in Hong Kong companies: 

  • The shareholder would like to liquidate their investment and get back the amount invested in the company.
  • A director resigns or is voted out from the board.
  • Shares are transferred to a spouse or close family member.
  • The business is an outright sale (sales consideration).
  • Business restructuring.

In brief, the Hong Kong government’s transaction tax will be imposed on the company’s Hong Kong-listed stock held by you after such transfer of the shares.

Share transfer in Hong Kong

In some cases, you may need to make changes in the share structure of your Hong Kong company. Many of the business entities does this by either bringing in new shareholders or reallocating the shares held by the present shareholders.

The main way that most companies in Hong Kong do it is by transferring shares. A share transfer is a process where current shares are moved from one owner to the existing shareholders or other parties by selling or giving away the shares, and it is a very popular practice among Hong Kong businessmen.

There are many events, however, which lead to company share transfer. The following are the most typical reasons:

  • To facilitate the process of restructuring a business. In this example, the movement of shares from one parent entity to a new entity is one way to do it.
  • A different profit-sharing model or common ownership arrangements will change the current proportion of shares between shareholders.
  • When a company owner is thinking of selling the company or they simply want to be out by selling some or even all of their stock.

How To Transfer Shares?

Under the Hong Kong Companies Ordinance, the Articles of Association for all Hong Kong private limited companies have to mention a section for share transfer restrictions.

Before the process of a transfer can be continued the mentioned conditions must be complied with.

  • Make sure that all conditions stated in the company’s Articles of Association which might regulate the transfer of shares have been satisfied or waived and obtain the shareholder’s approval of the share transfer.
  • Complete the share transfer documentation that will make the transfer to become effective.
  • Get all the required documents ready such as contract notes, resolutions, sales and purchase agreements, management accounting, etc. for the stamp duty to be paid and declared to the Hong Kong government.
  • The process is finished when all the documents have been duly conditioned.

In most cases, a Share Purchase Agreement settles the elements of the sale of the shares to the new legal entity.

These contracts normally stipulate the specific parts of the purchase, such as the price, terms, and period of payment, and also the guarantees from the transfer about the corporation’s financial and liability status.

Essentially, the process can be done in a period of three to five business days.

Documents Needed For Share Transfer

By now, you should have got the basics of the share transfer idea in Hong Kong.

The following documents and information must be given to prepare the documentation for changing Company Shareholders for your Hong Kong company:

  • Original copy of the most recent audit report (or certified most recent management accounts if applicable within six months).
  • Copy of the new shareholder’s residential address, passport, or identity card (Transferee).
  • Name of the seller (Transferor).
  • Total number of shares being transferred.
  • Decision-making process for dividend distribution.
  • Information regarding land ownership.
  • Purchase and Sale Agreement.
  • Audit report from a subsidiary and/or certified current management accounts.
  • Copy of the company’s Articles of Association.

These are the documents that you need to have ahead of time before you start the share transfer process.

Transfer Share Stamp Duty

If you transfer the shares of your business, the Hong Kong government, through the IRD, will impose capital duty on the entire value of the company or the face value of the shares, whichever is higher. There is no Hong Kong company that is immune from this transaction. 

The Inland Revenue Department (IRD) has devised a straightforward Stamp Duty Computation Program to assist in determining the stamp duty due on share transfer documents.

The Share Transfer Stamp Duty has now fixed the rate of the effective stamp duty at 0.2% on the value of the shares. Further details on stamp duty rates are available on the government’s website.

Your company’s value at the share transfer date is the net asset value (net asset value minus liabilities). If the value of the shares is at the time of transfer HKD $500,000, the transfer of the shares is subject to the Share Transfer Stamp Duty at the amount of HKD 1,000.

Keep in mind that stamp duty is an important element of the tax system in Hong Kong, and you have to execute that transaction. It should not be treated with indifference, and all requirements should be satisfied by each Hong Kong company.

Significance Of Updated Audit Report For Hong Kong Company

The importance of having a current audit report and management accounts for finalizing the transfer of shares is vital as IRD will need this to levy stamp duty on the transfer of shares in Hong Kong.

The corporation shall provide the Audit Report within a period of 6 months from the share transfer date, or the management accounts within a period of 3 months from the share transfer date.

That is, if you issue the Audit Report for the year ended December 31, 2021, you can transfer the shares at any time prior to June 30, 2022, without the need to issue another set of updated financial statements.

You will need to engage an accountant or prepare them yourself if you do not have a current Audit Report or management accounts. It would consume the most time in the stock move.

How FastLane Group Can Help?

Transferring (selling) shares and paying the tax (stamp duty) in a heartbeat becomes at ease with the assistance of FastLane Group. We can provide you with a company secretary, accounting, taxation service and other corporate services.

Our skilled team of professionals will keep up with you at each step of that process to reduce the chances of delays and problems, shoulder the burden of paperwork, and make sure everything works out properly and on time.  Contact the Fastlane team today for all your corporate assistance.