March 7, 2021

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Hong Kong Property Loophole exploited by the Ultra-Rich

3 min read
Hong Kong Property

Hong Kong Property

When Pan Sutong, the Chairman of Hong Kong’s Goldin Company investment group, allegedly splashed out 2.5 billion HK$ ($437.9 million) on an exclusive Deep Water Bay enclave last year, he himself saved 370 million HK$ in taxes.

When would it happen? Via an inshelling firm the three-story mansion with a swimming pool was kept, implying that the purchase was just around 0.2% stamped. Had Pan, a lifelong resident of Hong Kong, already owned the property there, a 15% fee on a daily transaction he must have charged.

In Hong Kong, the rich are being more cotton-like in this perfectly legal way. If assets are purchased by a corporation, the selling of the land is called an asset transfer and is taxable at 0.2%.

The loopholes have become increasingly common at the top, especially for Chinese buyers in the deep pocket, as the government increased property stamp charges in a hammered attempt to lower down prices. In a town full of a yawning affluent division – one that is gradually characterized as who can and cannot afford a house – the pattern is quite jarring.

The firm that owns Deep Water Bay land had a change of management in August of last year, according to the register of Hong Kong’s Firms. Mr Pan, who is valued at about US$2 trillion according to Bloomberg, and an offshore corporation has been appointed as the only director.

Several local journals, quoting unnamed sources, announced the purchasing price in September. Mr Pan was not immediately available to respond, said a Goldin Financial Holdings spokesperson.

The proportion of purchases carried out by business stock has risen to 27 percent this year, from 13 percent in 2013, according to Midland Realty, at the south and peak of Hong Kong island – where values might easily hit hundreds of millions of dollars. This was the year since the administration imposed a stamp tax on corporations and permanent residents of non-Hong Kong acquiring land.

Since beginning of 2017, the method has included some HK$14.5 billion of luxurious homes sold in these two districts.

„Many buyers claim only by special purpose vehicles they are going to look at assets,” said Koh Keng-shing, head of Landscope Realty’s Foreign Immobilien, member of Christie.

Non-permanent residents will also save more by paying 30 percent stamp duty on this path. If you have an overseas Shell business, you will even have the stamp duty of zero.

While the solution lets the rich buyers escape tax bills of many million dollars, it deprives Hong Kong of jobs. The Liber Research Collective Land Research Organization found that the government was missing at least $9,4 trillion in taxation as a consequence of the process between November 2010 and May of this year.

“There a back door to avoid paying the stamp duties” said Henry Chan, a researcher at the Liber Study Group. The department immediately advised the government to make improvements in beneficial possession obligatory for corporations purchasing residential assets.

There is also a rear door and is very much solely reserved for the incredibly wealthy. Buyers who use a shell structure are not required to take a mortgage for acquisition financing. In a city where demographic reports that the average citizen requires 19.4 years to acquire a property, this is no starter for ordinary workers.

It might sound like the best opportunity to save a bundle for anyone who can afford it, but there are dangers. Purchasers will not be informed of any obligations, loans or other undisclosed liabilities that may arrive with the business shell, owing in respect to assets that are first needed to be discharged before selling can take effect.

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