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A Complete Guide to Stamp Duty Rates on Renting in Hong Kong
Blog | June 12, 2023
After the landlord and tenant enter into a lease agreement, they are required to pay the stamp duty rates for the lease, which involves affixing a stamp on the document.
How is the stamp duty calculated? Any penalties for late payment? And what other important considerations? Let’s take a closer look at these matters in this Spacious’ article.
Jump to: Purpose and Procedure of Stamp Duty Rates | Stamp Duty Rates and Lease Term | Calculation of Stamp Duty Rates | Late Stamp Duty Penalty | FAQ
Purpose and Procedure of Stamp Duty Rates
When the tenancy agreement is stamped, it becomes a legally binding document. In case of any tenancy disputes in the future, the provisions of the lease agreement can be used as evidence, providing protection for both parties.
An unstamped lease agreement is not recognized by the law and may not be admissible in court to resolve unsettled tenancy issues.
After signing the lease agreement, it must be submitted to the Stamp Office of the Inland Revenue Department within 30 days for stamping. Agents usually handle the online stamping process and provide each party with a printed copy of the stamp certificate.
For any renting directly from landlords, both parties can use their individual “eTAX” accounts to complete the stamping process online. Generally, considering that landlords are usually more familiar with tenancy matters and they have the tenant’s deposit in hand, it is more convenient to entrust the landlord with the stamping process.
Regardless of whether the landlord or tenant carries out this step, it is important to remember that the most secure approach is to affix the stamp duty on the original copies of the lease agreement (typically, each party keeps one original copy) and retain a valid stamp certificate for each party.
The electronic stamp certificate serves the same purpose as the traditional physical stamp, but in a different format. If a preference for traditional stamping exists, the application and required documents must be submitted by mail or in person at the Stamp Office counter.
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Stamp Duty Rates and Lease Term
The amount of stamp duty for a lease depends on the duration of the lease, with tax rates ranging from 0.25% to 1%.
| Lease Term | Stamp Duty Rates |
|---|---|
| Unstated or Flexible | 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 |
| Duplicate (i.e. copy) and Corresponding Copy (i.e. another original copy of the same content) | $5 per copy |
Calculation of Stamp Duty Rates
For a common lease term of 2 years, the stamp duty is 0.5% of the annual rent, plus an additional $5 for photocopying. This is typically shared equally between the landlord and the tenant. In some cases, if the lease includes rent-free periods, the calculation method may vary.
Stamp Duty Rates for Rent-Free Periods
When there is a rent-free period, it is important to determine whether the rent-free period falls before the effective date of the lease or is included within the lease term.
For example, if the lease becomes effective on January 20th and there is a rent-free period from January 15th to 19th, the stamp duty is calculated based on the annual rent starting from January 20th, excluding the rent-free period.
On the other hand, if the rent-free period is included within the lease term, the first month’s rent is reduced, and the stamp duty is also reduced accordingly.
Here is an example.
Suppose the monthly rent is $10,000 and the lease term is 2 years. The calculation for the rent-free period is as follows:
Monthly rent divided by the number of days in a month, multiplied by the number of rent-free days = $10,000 ÷ 31 x 5 = $1,613.
The stamp duty for the two scenarios is as follows:
| Scenario 1 | Scenario 2 | |
|---|---|---|
| Monthly Rent | $10,000 | $10,000 |
| Lease Term | 2 years (starting from January 20th, 2020) | 2 years (starting from January 20th, 2020) |
| Rent-free Period | 5 Days before the Lease Effective Date | 5 Days after the Lease Effective Date (rent-free amount = $10,000 / 31 x 5 = $1,613) |
| Annual Rent | $10,000 x 12 = $120,000 | $10,000 x 12 – $1613 = $118,378 |
| Stamp Duty Rates | $120,000 x 0.5% = $600 | $118,378 x 0.5% = $592 |
Late Stamp Duty Penalty
There are penalties for late stamping, ranging from 2 to 10 times the original stamp duty amount.
| Length of Delay | Penalty |
|---|---|
| Not exceeding 1 month | Double the amount of stamp duty |
| Exceeding 1 month but not exceeding 2 months | 4 times the amount of stamp duty |
| In any other case | 10 times the amount of stamp duty |
In case of unintentional delay in stamping, both the landlord and the tenant can submit a written application to the Stamp Duty Office for a waiver of the penalty, explaining the reasons and preferably providing supporting evidence.
The Stamp Duty Office will consider each case individually and may grant a partial or full waiver of the penalty. If the delay was voluntarily disclosed and not intentional, the reduced penalty can be calculated using the following formula, with a minimum penalty of $500:
Reduced penalty = 14% × Required stamp duty × Number of days overdue ÷ 365 days
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FAQ
Why would a landlord refuse to stamp the tenancy agreement?
(1) By not stamping the lease, the landlord can avoid submitting the CR109 form to the Inland Revenue Department, thereby evading the government’s disclosure of rental matters and attempting to evade taxes.
(2) The property may be illegally rented out (e.g. subdivided units), and the tenancy agreement may not receive government stamping confirmation.
What can tenants do if the landlord refuses to stamp the agreement?
If negotiations are unsuccessful, tenants can submit the application online by themselves without the landlord’s consent. However, the tenant will need to bear the cost independently.
