Explained: Transfer of Shares and Stamp Duty for Businesses in Hong Kong
7 minute read
When a shareholder in a corporation sells or gifts his shares to another new or existing shareholder, this is known as a share transfer.
These are the reasons behind most transfers of shares in Hong Kong companies:
- A shareholder wants to leave the company and recoup their investment.
- A director resigns or is removed from the board.
- Shares are gifted to a partner or family member.
- The business is handed over or sold (sales consideration).
- Business restructuring.
In short, the Hong Kong government will charge a stamp duty when you transfer your desired amount of the company’s Hong Kong stock.
Want to understand more on this topic? Let’s take a better look at the Hong Kong transfer of shares process and stamp duty in this article.
Transfer of shares in Hong Kong
On some occasions, you may desire to amend the share structure of your Hong Kong company. Most business people do this by adding new shareholders or adjusting the portion of shares held by existing shareholders.
The most typical method for an average Hong Kong company is to transfer shares. A share transfer is a procedure of transferring current shares from one individual to existing shareholders or other parties via sale or gift, and it is a typical practice among Hong Kong businesses.
A company share transfer can be triggered by a number of events. The following are the most typical reasons:
- To make a company’s restructuring easier. For example, moving a corporation’s shares from one parent entity to a new entity.
- Because of new profit sharing or common ownership arrangements, changing the existing proportion of shares between shareholders.
- When a company owner is thinking about selling their company or wants out by selling some or all of their stock.
How to transfer shares?
According to the Hong Kong Companies Ordinance, all Hong Kong private limited companies must contain a section in their Articles of Association explaining their share transfer restrictions.
Before a transfer can take place, these requirements must be satisfied.
The steps are as follows:
- Confirm that any pre-emptive rights set forth in the company’s Articles of Association have been satisfied or waived, and obtain shareholder approval for the share transfer.
- Prepare the necessary share transfer paperwork for the transfer to take effect.
- Prepare all pertinent documents for stamping (stamp duty) by the Hong Kong government (contract notes, resolutions, sales and purchase agreements, management accounts, etc.).
- The process is complete once all documents have been successfully stamped.
A Share Purchase Agreement is frequently used to determine the terms of a transfer to a third party.
These contracts specify the specifics of the purchase, including the price and terms, as well as assurances from the transferor regarding your Hong Kong company’s finances and liabilities.
In most cases, the procedure for your company can be finished in three to five working days.
Documents required for share transfer
You should now have a good idea of how to transfer shares in Hong Kong.
The following documents and information must be given to prepare the documentation for changing Company Shareholders for your Hong Kong company:
- Within six months, the original copy of the most recent audit report (and/or certified most recent management accounts, if the business has started).
- Copy of the new shareholder’s residential address, passport, or identity card (Transferee).
- The seller’s name (Transferor).
- Total number of shares transferred.
- Dividend distribution is decided.
- Information on 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 necessary documents that you need to prepare before starting the share transfer process.
Stamp duty on share transfer
When you transfer your business’s shares, the Hong Kong government, specifically the IRD, will levy capital duty on the whole worth of the company or the par value of the shares, whichever is higher. No Hong Kong company is exempt from this transaction.
The stamp duty effective rate is now set at 0.2% on the value of the shares by the stamp duty office. More information on stamp duty rates can be found on the government’s website.
The total value of your company at the time of the share transfer would be its net asset value (net asset value minus liabilities).
This means that if a Hong Kong company transfers 100% of its shares to another shareholder and the shares are worth HKD $500,000 at the time of the transfer, the stamp duty is charged on the transfer at the sum of HKD 1,000.
Remember, stamp duty is an important part of the tax system in Hong Kong and you have to make that transaction. It should not be taken lightly and all requirements have to be met by every Hong Kong company.
Importance of an updated audit report for a Hong Kong company
The need of having an up-to-date audit report and management accounts for completing the transfer of shares is critical, since the IRD will require this to charge stamp duty on the transfer of shares in Hong Kong.
The corporation would be required to deliver the Audit Report within 6 months of the share transfer date, or the management accounts within 3 months of that date.
This means that if you produce the Audit Report for the fiscal year ending on December 31, 2021, you can transfer your shares anytime before June 30, 2022, without having to provide another set of updated financial statements.
If you don’t have a current Audit Report or management accounts, you’ll need to hire an accountant or create them yourself. This would be the most time-consuming aspect of the stock move.
How can Sleek help?
Transferring shares and taking care of stamp duty is an easy feat with the help of Sleek. Not only can we guide you through the entire incorporation process if you are new, but we can also provide you with a company secretary, accountant, and various other corporate services.
Our team of professionals can provide the necessary assistance to transfer shares and deal with the buyer’s stamp duty. Our experts have extensive experience in the field and you will have a hassle-free journey through every business endeavor with us.
You can read every important detail about the process here but there are some chances that you may miss a deadline or forget to file all the necessary papers during the process. To make sure you eliminate the chance of failure, contact Sleek.
We’ll provide assistance to you every step of the way to ensure that this procedure goes smoothly, on time, and with the proper documentation. You may not even be required to land in Hong Kong and be physically present there.
You are now familiar with the process of shares transfer in Hong Kong and you also know everything that is important regarding stamp duty and audit reports.
However, if you feel like you have some uncertainties and would like for us to better clear that up for you, do not hesitate to reach out. We are here to guide you and help you make the right business steps, including the transfer of shares.
Some of our other articles you might want to read: