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Hong Kong introduces Special Rates on first-hand private residential units

Hong Kong introduces Special Rates on first-hand...

Hong Kong Tax Alert - Issue 8, September 2019

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With a view to encourage a more timely supply of first-hand private residential units, on 13 September 2019, the Rating (Amendment) Bill 2019 was gazetted, introducing “Special Rates” on vacant first-hand private residential units with an occupation permit (“OP”) issued for 12 months or more, unless the units have been sold, or have been leased out for over 183 days during the reporting period.  Special Rates are chargeable at a flat rate of 200 per cent of the rateable value of the subject target unit, while Government has proposed to exempt units permitted for domestic use in certain types of premises.  A first-owner who holds a unit is required to submit annual returns to the Rating and Valuation Department (“RVD”) to declare the status of the unit during the past 12 months.  Penalties and fines would be imposed for failure to submit returns to the RVD within a specified period or failure to notify the RVD within a specified period after cancellation of sale and purchase agreement.

We give a brief overview of the main implications below. 

Submission of annual return to the RVD

The first-owner is required to declare the status of the units concerned, including

  • Whether the unit was leased to any person during the reporting period;
  • Whether the unit was provided by the first-owner to an employee as a place of residence during the reporting period; and
  • Whether any agreement of sale and purchase (“ASP”) of the unit was entered into before or during the reporting period by the first-owner with other person.

Details of related party transactions must be provided.  The annual return can be submitted to the RVD either in paper form or in form of an electronic record.  In event of subsequent cancellation or termination of the ASP, the first-owner is required to notify the RVD in writing within 28 days immediately after the date of the event.  Penalties and fines will be imposed for late return submission or notification.

Payment of Special Rates

Special Rates are chargeable on certain private domestic premises that are unsold after the issue of the occupation permits for the premises, at 200% of the rateable value of the unit.  Special Rates would not be charged if 

  • The unit is leased to a person (other than a related party of the first-owner) during the reporting period;
  • The unit is provided by the first-owner as an employer to an employee of the first-owner as a place of residence for not less than 183 days during the reporting period; or
  • An ASP was entered into by the first-owner as vendor with another person (other than a related party of the first-owner) as purchaser and is in force on the last day of the reporting period.

A person deriving the title of the target unit directly or indirectly from the original first-owner becomes a first-owner of the target unit if he is a related party of the original first-owner.

The Government has proposed to exempt units permitted for domestic use in certain types of premises, including but not limited to the following:

  • Premises held by the Government or incorporated public officer
  • Subsidised housing or transitional housing
  • Premises held by the Urban Renewal Authority (“URA”) for rehousing eligible persons affected by URA projects;
  • Licensed hotels and guesthouses; 
  • Hospitals, nursing homes, residential care homes for elderly, residential care homes for persons with disabilities, etc.

KPMG observations

The Bill will be introduced into the Legislative Council following the first Council meeting in the 2019/20 legislative session.  The outcome to the Bill would have a significant impact to real estate developers.  Affected companies will need to ensure mechanisms are in place to enable the timely and accurate submission of the required information.  They will also need to review their current holdings, quantify the impact of the proposed changes and look into effective ways to reduce their exposure.

For more information and assistance, please contact your usual tax advisor or one of our tax contacts below.

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