The Guide to Stamp Duty on Tenancy Agreement in Hong Kong

Stamp duty in Hong Kong is one of the crucial elements to understand when you rent property in Hong Kong. This is due to the involvement of tax that is imposed on tenancy agreements when you sign the rental documents. Thus, understanding the stamp duty for rent can save you from future disputes and penalties. If this sounds overwhelming, don't worry! There are simpler options available, like licence agreements, which only require a significantly lower payment amount in stamp duty.

Read through this article to learn the ins and outs of calculating the tenancy stamp duty and the difference between these two agreements to understand which is a better option for you.

What Is Stamp Duty?

To put it simply, stamp duty is a tax levied by the Hong Kong government for specific written documents, and in this case, a tenancy agreement is included to serve multiple purposes. One aspect is to give tenancy agreements a legal standing when you face disputes regarding the rented property. Another purpose is to act as part of the evidence that the stamp duty for property rental is understood and agreed upon by both parties.

When Is Stamp Duty Required?

Stamp duty for rent in Hong Kong is usually shared between the tenant and the landlord. According to the Stamp Duty Ordinance, both parties must pay their portion within 30 days of signing the lease document. To calculate stamp duty on tenancy agreements correctly, paying on time is important. Failure to do so can result in significant penalties for both tenants and landlords.

Difference Between Tenancy Agreement and Licence Agreement

Confirming and signing the tenancy agreement can be such a complex, time-consuming, and costly process; it heightens the challenge of acquiring a roof over one's head in Hong Kong. Fortunately, serviced apartments like The V do not require tenants to obligate stamp duty on their lease agreement, allowing flexible rental options. This exemption occurs because of the nature of operation and regulations similar to the hotels, where it is identified as an accommodation rather than a traditional lease.

This means that while a regular tenancy agreement is a legal contract for the person leasing the premises to occupy it for a certain period, a person who rented the serviced apartment has legal rights to use the premises that are signed for a certain period but does not have exclusive occupancy rights. However, those who sign a licence agreement may still need to pay a nominal fee of HKD 50 to the Stamp Office for adjudication purposes, ensuring clarity on the document's tax obligations.

Stamp Duty Rates for Rental

The payable rent stamp duty amount depends on the agreed amount of the lease and the duration.

How to Calculate Stamp Duty on Tenancy Agreements?

To calculate stamp duty on tenancy agreement correctly the following process needs to be understood.

• Clearly understand and define the rental amount.
• Identify the duration of the lease.
• Compare the stamp duty rate table output for the correct rate.
• Calculate by multiplying the rental amount according to the stamp duty rates

Other than the overall process of determining the right method to calculate tenancy stamp duty, one of the important aspects is the lease duration. Depending on the duration, the percentage of stamp duty rate changes. For example:

• Undetermined: 0.25%
• 1 Year or more: 0.25%
• 1 to 3 years: 0.5%
• Over 3 years: 1%

This calculation is done based on annual rent or average annual rent amount. An additional cost of HKD 5 is charged for each copy of the stamp duty tenancy agreement.

Sharing the Stamp Duty Responsibility

Stamp duty for rental agreements is mandatory, a legal requirement in HK. There could be legal consequences when it is not processed correctly, as the enforcement by law will recognize the tenancy invalid. To avoid this issue, both parties should agree on the payable amount to be paid within the grace period. While no law specifies who should pay the stamp duty, the payment must be made correctly and on time. The best practice is to clarify the specifics in the tenancy agreement to avoid any misunderstandings from taking action.

Penalties for Late Payment

As mentioned in the above sections, the stamp duty must be settled within 30 days of signing the lease agreement. If the payment is not made after 30 days, there are penalties for the late payment. The penalty for late payment increases based on the duration of the delay: after 30 days, it is 2 times the stamp duty amount; after 2 months, it becomes 4 times the stamp duty amount; for delays exceeding 2 months, the penalty escalates to 10 times the stamp duty amount. This headache can be avoided by considering the license agreement offered by service apartments instead of going for the rentals.

Importance of Stamping Your Tenancy Agreement

Paying stamp duty on tenancy agreements is not just a formality of any agreement; it is a procedure to protect both tenant and landlord. As an unstamped agreement will not be recognised by the court, it is important to have your stamp duty fixed as soon as you have signed your lease.

Online Stamp Duty

Stamp duty tenancy agreements can be made online via the eTax service from the Hong Kong government. Simply register or log in to the Hong Kong government eTax website and fill in for the e-stamp duty.

The V Apartments for Your Rental Choice

Speaking of rentals, The V Apartments offers a range of serviced apartments in Hong Kong. With the modern design, comfortable environment and a licence agreement free of duty stamp, renting a living space at The V could be your next option. If you want to know more about our monthly and daily rental options for serviced apartments in Hong Kong, please fill in the Enquiry Form or contact us today by phone at 3602 2388.