When Pan Sutong (潘蘇通), the billionaire chairman of Hong Kong investment conglomerate Goldin Group (高銀集團), splashed out a reported HK$2.5 billion (US$306 million at the current exchange rate) for a home in the exclusive enclave of Deep Water Bay last year, he saved HK$370 million in taxes.
How? The three-story mansion with swimming pool was held via a shell company, meaning that the purchase incurred just 0.2 percent in stamp duty.
Assuming that Pan, a permanent Hong Kong resident, already owns property there, he would have paid a 15 percent levy in a regular transaction.
In Hong Kong, that is a perfectly legal route that wealthy people are increasingly cottoning on to. When a property is held by a company, its sale is considered a share transfer and taxed at 0.2 percent, the same levy that applies to everyday stock trades.
As the government raised property stamp duties in a so-far fruitless effort to tame runaway prices, the loophole has become more popular at the top end of the market, particularly for rich Chinese buyers.
The trend is somewhat jarring in a territory plagued by a yawning rich-poor divide — one increasingly defined by who can and who cannot afford a home.
According to the Hong Kong Companies Registry, the company holding the Deep Water Bay property had a change in directors in August last year. Pan, who according to Bloomberg calculations is worth about US$2 billion, and an offshore firm were listed as the only directors in the entity.
The purchase price was in September reported by several local newspapers, which cited anonymous sources.
A spokesman for Goldin Financial Holdings Ltd (高銀金融集團) said that Pan was not immediately available for comment.
The proportion of property transactions made via company share transfers on Victoria Peak and the south side of Hong Kong Island — where prices can easily run into the hundreds of millions of US dollars — has jumped to 27 percent this year from 13 percent in 2013, according to Midland Realty (美聯物業).
That was the year after the government introduced the Buyer’s Stamp Duty levied on companies and non-Hong Kong permanent residents buying properties.
About HK$14.5 billion of luxury homes sold in the two districts have involved the method since the beginning of last year, Midland Realty’s data shows.
Non-permanent residents can save even more through this route, because they pay 30 percent stamp duty. Also, if the shell company is registered offshore, the stamp duty can be as little as zero.
While the method helps rich buyers avoid multimillion-dollar tax bills, it deprives Hong Kong of revenue.
Research by land concern group Liber Research Community found that between November 2010 and May of this year, the government lost out on at least HK$9.4 billion in taxes because of the method.
“The stamp duties are made ineffective because there’s a back door to avoid paying these,” said Henry Chan (陳劍青), a researcher with Liber Research Community (本土研究社).
The body has urged the government to make it mandatory for companies owning residential properties to declare changes in beneficial ownership.
It is also a back door that is pretty much reserved exclusively for the ultrarich. That is because buyers using a shell-company structure generally are not permitted to take out a mortgage for the purchase.
In a territory where Demographia estimates that it takes 19.4 years of income for the average person to buy a home, that is a nonstarter for regular earners.
People cannot just set up a new company for the purposes of evading tax. A few years ago, Hong Kong’s government cracked down on the creation of new shell companies to buy property, which are now taxed at 15 percent. However, the pre-existing shell companies only pay 0.2 percent.
For those who can afford it, it might seem the perfect way to save, but there are risks. Purchasers might not be aware of liens, or debts owed on a property that must first be discharged before a sale can take place, or other hidden liabilities that can come with shell companies.
“While special-purpose vehicles can lower stamp duty tax obligations, the due diligence process can be quite time consuming,” said Denis Ma (馬安平), head of research for Hong Kong at JLL . “That can add to the overall transaction costs.”
NO VIRUS BLUES: A SEMI Taiwan official said that the virus does not slow down the global semiconductor industry’s investment in manufacturing equipment The production value of the nation’s semiconductor industry is expected to grow 16.7 percent this year from last year, outpacing the global industry’s 3.3 percent growth, industry association SEMI said yesterday. That would help Taiwan safeguard its second spot in the global semiconductor market with a production value of more than NT$3 trillion (US$102.73 billion), SEMI Taiwan president Terry Tsao (曹世綸) told a media briefing in Taipei for the Semicon Taiwan trade show beginning today. The global semiconductor industry’s production value is expected to increase to US$426 billion this year, SEMI said. In terms of semiconductor equipment investment, equipment billings from Taiwanese firms
Intel Corp has received licenses from US authorities to continue supplying certain products to Huawei Technologies Co (華為), a company spokesman said yesterday. Washington has been pushing governments around to world to squeeze out Huawei, saying that the telecom giant would hand data to Beijing for espionage. From Monday last week, new curbs have barred US companies from supplying or servicing Huawei. This week, the state-backed China Securities Journal reported that Intel had received permission to supply Huawei. China’s Semiconductor Manufacturing International Corp (SMIC, 中芯國際), which uses US-origin equipment to make chips for Huawei and other companies, last week confirmed that it had sought
INVEST IN TAIWAN: A metal components casting firm and the world’s largest maker of aluminum bicycle rims also obtained approvals to join the program Solar Applied Materials Technology Co (SOLAR, 光洋應用材料), a part of Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) “green supply chain,” has pledged to invest NT$1 billion (US$34.1 million) to build a new plant at the Tainan Technology Industrial Park (台南科技工業區), the Ministry of Economic Affairs said yesterday. SOLAR has been collaborating with TSMC to extract precious metals from waste and reuse them as “sputtering target” material in high-end semiconductor manufacturing, a TSMC press release issued in May said. Established in 1978, SOLAR also offers key materials and integrated services to customers in the optoelectronics, information and communications technology, petrochemicals and consumer electronics industries,
Swancor Renewable Energy Co (上緯新能源) yesterday announced plans for a 4.4 gigawatt (GW) offshore wind project off Miaoli County as part of its commitment toward Taiwan’s energy transformation, the company said in a statement. The “Formosa 4” project includes three deep-water wind farms 18km to 20km off the coast, Swancor Renewable CEO Lucas Lin (林雍堯) said, adding that planning for the project began last year. A proposal for Formosa 4 was this week submitted to the Environmental Protection Agency (EPA), the company said. Swancor Renewable jointly developed the Formosa 1 project, a 128 megawatt (MW) wind farm about 4km off Miaoli and the