SDO s45 Transfer between associated bodies corporate

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).

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.

Associated bodies corporate

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

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.

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 were to cease 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made, due to change in percentage of the issued share capital of the transferee, the exemption granted is deemed to be withdrawn.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 due	Penalty
No more than 1 month	2 times of the basic stamp duty
More than 1 month but no more than 2 months	4 times of the basic stamp duty
More than 2 months	10 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.

Reference links

• Cap. 117 Stamp Duty Ordinance ─ Section 45 Relief in case of conveyance from one associated body corporate to another (in English)

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