Stamp duty is a tax on certain written documents that evidence transactions. Parties to a tenancy document are liable to pay stamp duty on the document according to Schedule 1 of the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong Kong). The rate of stamp duty varies with the term/period of the tenancy. The current rates are as follows.
Term of the tenancy
Rate of stamp duty
Not defined or uncertain
0.25% of the yearly or average yearly rent
Not exceeding 1 year
0.25% of the total rent payable
Exceeding 1 year but not exceeding 3 years
0.5% of the yearly or average yearly rent
Exceeding 3 years
1% of the yearly or average yearly rent
$5 is also be payable for the stamping of each counterpart of the tenancy document.
A licence does not transfer any interest in land and is not liable for stamp duty. However, if there is any doubt as to whether a tenancy document is liable for stamp duty, then it is good practice to seek adjudication from the Stamp Office. The current adjudication fee is $50.
No law specifies whether the landlord or the tenant should pay the stamp duty. Therefore, the parties to a Tenancy Agreement can freely agree between themselves on their respective shares of stamp duty. In most cases, the parties will pay the stamp duty in equal shares.
Example
There is a two month rent-free period in a tenancy with a term of three years and a rent of $10,000 per month. How can the stamp duty be calculated for this Tenancy Agreement?
The stamp duty chargeable on a tenancy document and its counterpart is based on the rent payable or the yearly or average yearly rent. A rent-free period will therefore diminish the base on which stamp duty is calculated. The following examples will serve to illustrate how a rent-free period affects the stamp duty payable.
A property is let for $10,000 per month and the term of the tenancy is 3 years without a rent-free period. The stamp duty payable is:
($10,000.00 x 36)/3 x 0.5% + $5 = $605
A property is let for $10,000 per month and the term of the tenancy is 3 years with a rent-free period of 2 months. The stamp duty payable is:
($10,000 x (36 – 2))/3 x 0.5% + $5 = $572