SDO s45 Transfer between associated bodies corporate

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Stamp Duty Ordinance section 45: Transfer between associated bodies corporate is a taxation law of Hong Kong. It provides exemption of the Hong Kong Stamp Duty on certain instruments in relation to property or stock transfers between certain associated corporations (also known as intra-group companies).

Stamp Duty Ordinance Ordinance of Hong Kong

The Stamp Duty Ordinance is one of Hong Kong Ordinances which regulates the law of stamp duty.

Hong Kong Chinese special administrative region

Hong Kong, officially the Hong Kong Special Administrative Region of the People's Republic of China (HKSAR), is a special administrative region on the eastern side of the Pearl River estuary in southern China. With over 7.4 million people of various nationalities in a 1,104-square-kilometre (426 sq mi) territory, Hong Kong is one of the most densely populated places in the world.

Legal instrument is a legal term of art that is used for any formally executed written document that can be formally attributed to its author, records and formally expresses a legally enforceable act, process, or contractual duty, obligation, or right, and therefore evidences that act, process, or agreement. Examples include a certificate, deed, bond, contract, will, legislative act, notarial act, court writ or process, or any law passed by a competent legislative body in municipal (domestic) or international law. Many legal instruments were written under seal by affixing a wax or paper seal to the document in evidence of its legal execution and authenticity. However, today many jurisdictions have done away with the requirement of documents being under seal in order to give them legal effect.

Contents

Scope of exemption

HK SDO section 45 provides exemption of stamp duty to the following instruments:

  1. Conveyance on sale of immovable property (Head 1(1), (1AA) or (1AAB) in the First Schedule);
  2. Contract notes in relation to transfer of Hong Kong stock (Head 2(1) in the First Schedule);
  3. Instruments of transfer operating as voluntary disposition inter vivos in relation to transfer of Hong Kong stock (Head 2(3) in the First Schedule).

Section 29H(3) provides similar exemption to agreement for sale of residential property (Head 1(1A), (1B) or (1C) in the First Schedule).

A lease or lease agreement, however, does not fall within the scope of exemption by reason of associated bodies corporate.

Lease business contract between two parties, the lessor (owner) and lessee (user), for use of property

A lease is a contractual arrangement calling for the lessee (user) to pay the lessor (owner) for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment is also leased.

Associated bodies corporate

Different from "associate company" as defined in accounting, "associated" is defined under section 45(2) to mean:

Associate company

An associate company in accounting and business valuation is a company in which another company owns a significant portion of voting shares, usually 20–50%. In this case, an owner does not consolidate the associate's financial statements. Ownership of over 50% creates a subsidiary, with its financial statements being consolidated into the parent's books. Associate value is reported in the balance sheet as an asset, the investor's proportional share of the associate's income is reported in the income statement and dividends from the ownership decrease the value on the balance sheet. In Europe, investments into associate companies are called fixed financial assets.

Accounting measurement, processing and communication of financial information about economic entities

Accounting or accountancy is the measurement, processing, and communication of financial and non financial information about economic entities such as businesses and corporations. The modern field was established by the Benedikt Kotruljevic in 1458, merchant, economist, scientist, diplomat and humanist from Dubrovnik (Croatia), and Italian mathematician Luca Pacioli in 1494. Accounting, which has been called the "language of business", measures the results of an organization's economic activities and conveys this information to a variety of users, including investors, creditors, management, and regulators. Practitioners of accounting are known as accountants. The terms "accounting" and "financial reporting" are often used as synonyms.

  1. A corporate which is a directly or indirectly beneficial owner of not less than 90% of the issued share capital of the other; or
  2. A third party corporate is beneficial owner of not less than 90% of the issued share capital of each company. An example is the relationship of a holding company and two subsidiaries.

As explicitly stated in the law, it is 90% of the "issued share capital" and not "number of issued shares". Further, the associated body must be a "corporate" and not an individual or a partnership. That is to say, if two subsidiaries are held by an individual, since that individual is not a "corporate", the transfer between those two subsidiaries should not be qualified for section 45 exemption.

Partnership Arrangement in which parties agree to cooperate to advance their mutual interests

A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.

Ceased to be associated bodies

HK SDO section 45(4)(c) provides that no exemption shall be applied if there is such an arrangement under which the transferor and transferee have ceased to be associated due to change in percentage of the issued share capital of the transferee.

HK SDO section 45(5A) further provides that if the transferor and transferee have ceased to be associated, within 2 years after the date of transfer is made, due to change in percentage of the issued share capital of the transferee, the exemption granted is deemed to be withdrawn.

In such case, the transferor and transferee shall notify the Collector of Stamp Revenue and pay the stamp duty within 30 days after the date of the cessation of such associated relationship.

Penalty

For failure to notify

As required by section 45(5A)(a), the transferor and transferee shall notify the Collector of Stamp Revenue within 30 days after the date of the cessation of such associated relationship. Section 45(7) provides that failure to do so renders a maximum penalty at level 2 (as defined in Schedule 8 of the Criminal Procedure Ordinance (Cap. 221), currently HK$5,000).

For failure to pay stamp duty

As required by section 45(5A)(c), the transferor and transferee shall pay the stamp duty within 30 days after the date of the cessation of such associated relationship. Section 45(5A)(d) provides that failure to do so renders a penalty same as that calculated under section 9, that is:-

Section 9 penalty loading
Number of months over duePenalty
No more than 1 month2 times of the basic stamp duty
More than 1 month but no more than 2 months4 times of the basic stamp duty
More than 2 months10 times of the basic stamp duty

The Collector of Stamp Revenue may remit the whole or any part of any penalty imposed under section 9.

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