1. How is stamp duty calculated on a tenancy document?

1. How is stamp duty calculated on a tenancy document?

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