Taxation of Rental Income in Hong Kong
Property tax is charged to the owner of any land or buildings (except government and consular properties) in Hong Kong SAR at the standard rate of 15% on the net assessable value of such land or buildings. Net assessable value of a property is the consideration payable to the owner for the right to use the land or buildings less rates paid by the owner and a 20% notional allowance. Property occupied by the owner for self-use is not subject to property tax as no rent is receivable with respect to that property.
Inland Revenue Department (IRD), the tax authority of Hong Kong, enacts Inland Revenue Ordinance (IRO), the tax law of Hong Kong, to collect Property Tax.
Property Tax is payable annually by the owner(s) of an immovable property (i.e. home flat, apartment, land and/or building) in Hong Kong at the standard rate 15% from 2008/09 onwards by the year of assessment (starts on 1 April and ends with 31 March in the following year. For example, the year of assessment 2021/22 runs from 1 April 2021 to 31 March 2022, which includes 12 months.) on the property’s “net assessable value” (NAV).
“Owner” is defined to describe a legal person who is holding from the Hong Kong government of, a beneficial owner of, a life tenant of, a mortgagor of, a mortgagee in possession of holds land or buildings subject to a ground rent to the person.
NAV is calculated from “assessable value”(AV) which is computed from the rental income paid or payable to the owner as well as other income to owner in respect to giving the right of use of the property.
“Rental income” is determined by the Inland Revenue Department, it includes any of property’s premiums, service charges, management fees, rates, repairs and outgoings paid by the tenant either to the owner or on behalf of the owner under the terms of the lease.
As a result, the owner is obliged to keep records for up to 7 years and inform IRD of the actual sums received.
Government rates and rent
Rates are an indirect tax levied on properties in Hong Kong SAR. Rates are charged at 5% of the rateable value which is the estimated annual rental value of a property at the designated valuation reference date of 1 October.
Privately owned land in Hong Kong SAR is normally held by way of a government lease under which rent is payable to the government of the Hong Kong SAR in return for the right to hold and occupy the land for the term (i.e. duration) specified in the lease document. Currently, government rent is calculated at 3% of the rateable value of the property and is adjusted in step with any subsequent changes in the rateable value.
For lease of immovable property in Hong Kong SAR, stamp duty is calculated at a specified rate of the annual rental that varies with the term of the lease. Currently, the applicable rate ranges from 0.25% (for lease period of not more than one year) to 1% (for lease period of more than three years).
The tax year in Hong Kong is 1 April – 31 March. Profits earned during an accounting year ending within the tax year will be deemed to be the profits for that tax year.