Hong Kong

If the income from property chargeable to Property Tax is included in the taxpayer’s assessable profits for Profits Tax purposes (e.g. the rental income is received from a trade/business), the amount of Property Tax paid may be deducted from the amount of Profits Tax assessed. Corporations carrying on a trade, profession or business in Hong Kong, on application made in writing to the Commissioner of Inland Revenue, may be exempted from paying the Property Tax which would otherwise be set off against their Profits Tax.

A checklist for reduction of property tax 1. Are you a low-income person? If yes, you should elect for personal assessment to remove or to reduce the tax. 2. Have you borrowed money to purchase the property and paid interest? If yes, you should elect for personal assessment to claim deduction of interest. 3. Do you include rent deposits in your rental income? If yes, you should exclude them from the assessable value. 4. Have you received lump-sum premium? If yes, the premium can be spread over 36 months in order to reduce tax. 5. Do you pay management fee as an agent of the tenant? If yes, such fee received from the tenant is not assessable. 6. Do you know what property income are assessable and what are non-assessable? The checklist is for general guidance only. Indeed, the above guidelines are subject to the various conditions laid down in […]

Lum-sum Premium Received  The lump-Sum premium received at the start of the lease period can be spread throughout the lease period up to a maximum of 36 months if the owner makes such an election.  Government Rent and Rates  The “rates paid by the owner” does not include government rent. In other words, the government rent levied in the rates bill is not deductible. To claim the rates deduction, it is advisable for the property owner to keep all the rates bill.  Management Fees  Where the tenant pays management fees through the landlord and such fee is not included as rent under the lease, the fee is not assessed able. Election for Personal Assessment  The landlord may reduce his tax liability by election for Personal Assessment which brings all his income including property income, salaries income and business income into a single assessment with deductions for married person allowance, child […]

1. Illustration of Computation of Property Tax Rental income for 1 July 2007 to 31 March 2008: $38,000 per month. Rates paid by owner for the 3 quarters ending on 31 March 2008: $12,000. Provisional Tax paid per last tax bill for 2007/2008: $35,000. Rent for 9 months ($38,000 x 9): $342,000 less rates paid by owner of $12,000 equal to $330,000 (assessable value). Then, less 20% allowance for repairs and outgoings of $66,000, gives $264,000 (Net assessable value). Property Tax for 2007/2008: $264,000 *16% = $42,240 Less: Provisional Tax paid for 2007/2008: $35,000 Balance payable for 2007/2008: $7,240 Add: Provisional Tax for 2008/2009: $264,000 * 12 / 9 * 16% = $56,320. Total tax payable to be shown in the tax bill: $7,240 plus $56,320 equal to $63,560. The tax $63,560 is payable in two installments: the first one in November 2008 and second in April 2009. The November […]

Under section 5(1) of the Inland Revenue Ordinance, Property Tax is charged on the owners of land and/or buildings in Hong Kong who let out their properties in return for rental income and/or other charges. This tax is payable by the owner(s) at the standard rate (16% for the year of assessment 2004/05 onwards), by the year of assessment, on the net assessable value of the relevant property. The net assessable value is the assessable value (after deduction of rates paid by the owner, if applicable), and then less an allowance of 20% of that assessable value for repairs and outgoings. The assessable value is computed by reference to the rent and other charges payable to the owner in respect of the right of use of the property. Such items include rent, payment for the right of use of premises under license (license fee), a lump sum premium, service charges […]

Property held by one owner The owner should disclose the rental income in his Individual Tax Return (BIR 60). Property held by more than one owner Every owner (whether he is a joint owner or an owner-in-common) is legally obliged to file a Property Tax Return (BIR 57) to disclose the rental income and pay Property Tax as if he were the sole owner. But in practice, the tax return will be sent to the precedent owner (the owner as first named in the title deed) — then the precedent owner will be required to file the tax return and pay the tax on behalf of the other owners. Tax penalty may be imposed on the owner if he commits the following offence: 1. failure to notify the Revenue within 4 months after the year of assessment if he has not received a tax return; 2. failure to file the […]

Section 5 of the Inland Revenue Ordinance levies property tax on the property owner in respect of the rental income of his land and building in Hong Kong. In general, the tax is equal to: Standard rate (1 6 %) * 80% * (rental income -rates paid by the owner). Put it simply, property tax is based on the actual rental profits derived from the ownership of real property in Hong Kong. “Owner” is defined in section 2(1) to include a person holding directly from the Hong Kong government, a beneficial owner, a life tenant, a mortgagor, a mortgagee in possession … and a person who holds land and buildings subject to a ground rent. If the owner is a limited company carrying on a business in Hong Kong, the company can apply for an exemption of property tax under section 5(2) on the grounds that the income will be […]

Characteristics of Property Tax Property tax is levied annually on the owner or occupier of real estate located in Hong Kong. Since ownership may be split (e.g. an entity with a 100-year lease may grant a 50 year sublease to a 3rd party) separate assessments may be made on the same parcel of land. Property tax, which is governed by the provisions of the Inland Revenue Ordinance, has the following characteristics for individuals:  The annual assessment to property tax is based on 100% of the annual rental income of the property less any rates paid, any bad debts, a repairs and outgoings allowance constituting a maximum of 20% of the annual rental income (irrespective of whether or not more was actually spent) and other allowable deductions. In determining “rental income” the Inland Revenue will include any premiums, service charges, management fees, rates, repairs and outgoings paid by the tenant […]

The Scope of the Charge Property Tax is charged on the owners of land and/or buildings in Hong Kong and is computed at the standard rate of 15% on the net assessable value of the property. The Basis of Assessment The assessable value is computed by reference to the actual rental income payable to the owner in respect of the right of use of the property. Examples of consideration to be included in the assessable value are rent, payment for the right of use of premises under license, lump sum premium, service charges and management fee paid to the owner, and owner’s expenditure (e.g. repairs) borne by the tenant. The net assessable value is the assessable value (after deduction of rates paid by the owner) less an allowance of 20% for repairs and outgoings. Deductions Allowed The following items can be claimed as deductions: (1) Rates if the owner is […]

What are assessable profits? This question hinges on two points: first, there are profits, and second, such profits are assessable. The Inland Revenue Ordinance does not define “profits”. In fact, there are a number tax cases, particularly in the U.K., on this question. In business practice, profit means the net profit, or the net gain, or the surplus of incomes over expenses. It follows that profits concern determining incomes and expenses. The second point is: what profits are assessable? As established from tax cases, assessable profits are the accounting profits determined in accordance with generally accepted accounting principles (GAAP) as adjusted to conform with the provisions of Inland Revenue Ordinance. Then, what are accounting profits or GAAPs? This is a big topic and there are a lot of accounting textbooks on the question. Besides, the Hong Kong Society of Accountancy has from time to time issued Statements of Standard Accounting […]