Hong Kong Property Tax Guide (3) – Scope of Charge

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 assessed under profits tax. If the company has paid property tax, the property tax paid can be utilized to set off under section 25 its profit tax liability and if the property tax paid exceeds its profits tax liability, the excess will be refunded to the company.

Section 5B: Rental Income includes license fee, lump sum premium or management fee paid or payable to the owner. The owner’s expenses (e.g. maintenance and property tax) borne by the tenant is regarded as taxable income.

No deduction for decoration fees, rent-collection fees, insurance and mortgage interests under Property Tax. In theory, such expenses have been covered by the 20% flat-rate deduction. No more allowance even though the owner incurs more expenditure. Nevertheless, mortgage interest may be deductible under Personal Assessment if the owner elects to be personally assessed.

Property tax of individual taxpayers are handled by Unit 2 whereas all other property tax cases are handled by Property Tax Center of Headquarter Unit.