Business Contracts

20/06/2017

There is a wide range of contracts that need to be used in the course of doing business. Make sure everyone is aware of their rights and obligations from the outset to help to protect your business and avoid disputes later on.

Before you enter into a commercial relationship, you can use a Letter of Intent (Memorandum of Understanding) to set out the key terms of the future agreement. Contracts setting out the basis on which goods or services are sold are a vital part of every business. Specify terms and conditions of a sale in a Sale of Goods Agreement. If a service between two businesses is being provided, use a Supply of Services Agreement instead.

Good cash flow is essential for a healthy business so use a Purchase Order to confirm an order and issue Invoices on time. When it comes to business expansion, a Distribution Agreement allows you to keep control of your business while expanding your geographical coverage. If you need to terminate a contract early, make sure you follow the right procedure by using a Letter Ending a Contract.

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A sole trader is the simplest form of business structure and is relatively easy and inexpensive to set up. As a sole trader (sometimes called a sole proprietor), you will be legally responsible for all aspects of the business. You’ll generally make all the decisions about starting and running your business, and you are permitted to employ staff. Business registration can be done quickly, as documentation and formalities are minimal. However, the main disadvantages are that you will be personally liable for business debts and that you may be perceived as less professional than if you operated under another business structure. It is important to consider the advantages and disadvantages when deciding what type of business structure is right for you.

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Part II: What is stamp duty and how much is it in Hong Kong?

18/04/2017

This is Part II in our series on “What is stamp duty and how much is it in Hong Kong? To understand what kind of documents and which persons are liable for stamping as well as which events attract stamp duty, see Part I.

How can I get a document stamped?

There are several ways to get a document stamped:

  • Conventional Stamping;
  • e-Stamping; and
  • Paper application of property documents.

Conventional Stamping

Under the conventional stamping procedure, you have to present the original instrument with a stamping request and supporting documents at the Stamp Office Counter, apart from Tenancy Agreements which can be sent by post. This mode of stamping is applicable for all types of instruments including property documents and those relating to stock transactions. The Stamp Office will either issue a stamp certificate in respect of the instrument or impress a stamp on the document upon receiving the stamping request with the required document(s) and payment.

e-Stamping

The e-Stamping system is an alternative mode of stamping to manual stamping. Instead of conventional stamps, it generates stamp certificates that are issued instantly upon receipt of stamp duty through online mode or within 2 working days after receipt of stamp duty through offline mode. It can be used for instruments related to property transactions, namely agreement for sale, assignment and tenancy agreement.

Learn more about e-Stamping

Paper application of property documents

For agreements and assignments, as well as Tenancy Agreements, you may submit an application for stamping without presenting the original instrument in paper form at the Stamp office.

Access more resources on the methods of stamping

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What happens when I stamp my documents late or omit to stamp my documents?

There is a time limit by which you have to stamp your documents, and this varies depending on the type of document.

Nature of document Time limit
Conveyance on sale (including deed of gift) Within 30 days after the date of execution.
Agreement for sale of residential property Within 30 days after the relevant date (which means the date of the agreement, or, the date of the earliest agreement made by the same parties on the same terms if the agreement to be stamped is preceded by one or more such agreements), except otherwise provided in the Ordinance.
Agreement for sale of residential property (Deferred Payment Cases)
  • If completed by Assignment:
    within 30 days after execution of the related Assignment.
  • If resale/disposal before Assignment:
    within seven days after date of re-sale or disposition.
  • For all cases, the maximum period of deferment is three years after the relevant date of the agreement.
Lease Within 30 days after the date of execution.
Contract note for purchase or sale of Hong Kong stock Within two days after the sale or purchase, if effected in Hong Kong;
within 30 days after the sale or purchase, if effected elsewhere.
Instrument of Transfer of Hong Kong stock (not including gift) Before the date of execution, if executed in Hong Kong;
within 30 days after the date of execution, if executed outside Hong Kong.
Gift of Hong Kong stock. Within seven days after the date of execution, if executed in Hong Kong;
within 30 days after the date of execution, if executed outside Hong Kong.

 

Source: GovHK

Should you fail to stamp your document before or within the time for stamping, your document may be stamped by the Collector, with a penalty, upon payment of the stamp duty.

 

 

Length of Delay Penalty
Not exceeding one month Double the amount of stamp duty.
Exceeding one month but not exceeding two months Four times the amount of stamp duty.
In any other case 10 times the amount of stamp duty.

 

Source: GovHK

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Is there anything that you should look out for when stamping your documents in Hong Kong?

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Part I: What is stamp duty and how much is it in Hong Kong?

This is Part I in our series on “What is stamp duty and how much is it in Hong Kong? To learn more about how to get a document stamped and time limits on stamping, see Part II.

As the owner of a small business or an entrepreneur-to-be, there may be many instances where you will required to produce documents and have them stamped. For example, issuing new shares. In this case here are two main ways of doing this: by issuing new shares or by transferring shares by way of a sale or gift. For the latter (i.e. whenever shares are transferred by an existing shareholder to any third party), stamp duty must be paid on those shares.

While these are relatively simple procedures, it is important to understand the basic requirements of how to carry them out to ensure compliance with the relevant regulations governing the issue and transfer of shares in your jurisdiction.

Learn more about issuing and transferring shares

What is stamp duty?

Stamp duty is a tax that is levied on documents relating to the sale, transfer and lease of properties, such as immovable properties, stocks and shares. Individuals that pay the tax receive a stamp on their documents. The exact documents that attract stamp duty varies from jurisdiction to jurisdiction.

What kind of documents and persons are liable for stamping?

According to the Stamp Duty Ordinance (Cap. 117) of Hong Kong, the following types of documents are subject to stamp duty:

 

Nature of document Persons liable
Conveyance on sale All parties and all other persons executing.
Agreement for sale and purchase All parties and all other persons executing.
Lease All parties and all other persons executing.
Transfer of Hong Kong stock:

  • Contract Note for the sale or purchase of  any Hong Kong stock
  • Transfer of any other kind
  • The agent or where no agent, the principal effecting the sale or purchase
  • The transferor and the transferee.

Source: GovHK

Should a chargeable instrument not be duly stamped, any person who uses such instrument is liable to the stamp duty and any penalty.

How much is stamp duty in Hong Kong?

The stamp duty rates and their method of calculation vary, depending on the type of transaction, the nature of the document, and the date on which the document is executed.

Transfer of Hong Kong stock

For Hong Kong stock, stamp duty is calculated as follows:

 

Nature of document Rate (with effect from 1 September 2001)
Contract Note for sale or purchase of Hong Kong stock 0.1% of the amount of the consideration or of its value on every sold note and every bought note.
Transfer operating as a voluntary disposition inter vivos HKD 5 + 0.2% of the value of the stock to be transferred.
Transfer of any other kind HKD 5.

 

Lease

For lease of immovable property in Hong Kong, stamp duty is calculated at rates which vary with the term of the lease as follows:

 

Term Rate
Not defined or is uncertain 0.25% of the yearly or average yearly rent (Note 1a).
Does not exceed 1 year 0.25% of the total rent payable over the term of the lease (Note 1a).
Exceeds 1 year but does not exceed 3 years 0.5% of the yearly or average yearly rent (Note 1a).
Exceeds 3 years 1% of the yearly or average yearly rent (Note 1a).
Key money, construction fee etc. mentioned in the lease 4.25% of the consideration if rent is also payable under the lease. Otherwise, same duty as for a sale of immovable property.

 

Learn more about the key terms to look out for in a Commercial Lease

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Sale or transfer of immovable property

With effect from 23 February 2013, stamp duty on sale or transfer or immovable property in Hong Kong is chargeable with ad valorem stamp duty (AVD) at Scale 1 rates, as follows:

 

Amount of value of the consideration Rate
Exceeds Does not exceed
HKD 2,000,000 1.5%
HKD 2,000,000 HKD 2,176,470 HKD 30,000 + 20% of excess over HKD 2,000,000
HKD 2,176,470 HKD 3,000,000 3%
HKD 3,000,000 HKD 3,290,330 HKD 90,000 + 20% of excess over HKD 3,000,000
HKD 3,290,330 HKD 4,000,000 4.5%
HKD 4,000,000 HKD 4,428,580 HKD 180,000 + 20% of excess over HKD 4,000,000
HKD 4,428,580 HKD 6,000,000 6%
HKD 6,000,000 HKD 6,720,000 HKD 360,000 + 20% of excess over HKD 6,000,000
HKD 6,720,000 HKD 20,000,000 7.5%
HKD 20,000,000 HKD 21,739,130 HKD 1,500,000 + 20% of excess over HKD 20,000,000
HKD HKD 21,739,130 8.5%

AVD is payable at Scale 1 for agreements for the sale for the acquisition of any residential property or non-residential property, if the agreement is executed on or after 23 February 2013, unless specifically exempted or otherwise provided.

Access the Stamp Duty Rates Table

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See Part II to learn more about how to get a document stamped and time limits on stamping.

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