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【Entrepreneurs Must-Read】Hong Kong Profits Tax Guide 2024

Profit Tax Computation in Hong Kong and Deductible Items

In Hong Kong, property has always been a popular investment method, but compared to stamp duty, people know less about property tax. Whether in individual or company name, property owners are required to pay property tax on rental income from their Hong Kong properties. Read this article if you want to know the definition of property tax, calculation methods, deductions, and deferred payment options.

What is Property Tax and Who is it Collected from?

In Hong Kong, property owners are required to fulfill their legal obligations and pay property tax if they rent out their local properties and generate rental income. 

Even if you rent out common areas of a building, such as parking spaces or rooftops, which are jointly owned by multiple owners, you still need to declare the rental income and pay tax on it. If the building has established an owners' corporation, the corporation is responsible for declaring and paying tax on the rental income from the common areas.

In recent years, many property owners have been subdividing their properties for rental purposes to earn extra income. When reporting property tax, it is important to fully declare all income and not hide any information.

Property Tax Calculation Method

The property tax rate is 15% of the assessable value of the rental income. The complete calculation method is as follows:

[(Rental Income - Irrecoverable Rent - Rates) - Standard Deduction (20%)] × 15%

List of Deductible Items

Irrecoverable Rent

Unlike general rental arrears, "irrecoverable rent" refers to rent that cannot be recovered. Only when the tenant fails to pay the rent and cannot be contacted later can it be considered as "irrecoverable rent". Once the previously deducted rent is recovered, property owners must declare the assessable rental income to the Inland Revenue Department for that tax year.

Rates

All properties in Hong Kong are assessed and charged rates by the Rating and Valuation Department.

• Non-residential properties rates are 5%.
• Residential properties with a rental value of $550,000 or below, the rates are 5%.
• Residential properties with a rental value exceeding $550,000, progressive rates are applied.

Statutory Allowance for Repairs & Outgoings

The repair expenses of a property may vary depending on the age and scale of the building. The Inland Revenue Department has simplified the calculation process by uniformly deducting 20% of the net rental income. Property owners do not need to provide proof of actual expenses, and even if the actual expenses are higher, no additional deductions can be made.

Example:

Applying for Deduction of Mortgage Interest

Deducting mortgage interest from taxes is a tax exemption included in the Budget. Homeowners can claim the interest paid on their self-occupied residential property as a deduction to lighten their financial burden. The maximum deduction limit is HK$100,000 per year. The deduction period spans 20 tax assessment years, and it does not need to be applied for continuously. Taxpayers can decide which years they would like to apply for.

To learn more about the details of applying for the deduction of mortgage interest, stay tuned to the OneStart blog updates or inquire with OneStart Business Consultants.

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Tax Filing Methods

• For properties solely owned by individuals: BIR60
• For properties jointly owned or owned by a body of persons: BIR57
• For properties owned by corporations or groups: BIR58

Property Tax or Personal Assessment?

In addition to filing property tax, Hong Kong property owners who generate rental income (residing in Hong Kong for not less than 180 days in a year, or not less than 300 days in consecutive years) can also choose to file personal assessment.

• Property Tax: 15% of the net rental income (after deductions).
• Personal Assessment: Calculated using the progressive tax system, with more tax deductions available.

Many people believe that filing personal income tax can save more taxes due to the availability of tax deductions. However, taxpayers should consider their overall income, as personal income tax combines income from wages and rent, and the highest tax rate is higher than the general standard tax rate. If a taxpayer has a high overall income, filing personal income tax may result in a higher tax payment.

However, the Inland Revenue Department will assess and automatically adopt the most favorable tax filing method, so taxpayers do not need to worry about overpaying taxes as long as they accurately report their income and expenses.

Applying for Deferred Payment of Provisional Tax

To apply for deferred payment of provisional tax, one must meet one of the following conditions:

• The assessable value of the property for which provisional tax is due is less than/ likely to be less than 90% of the assessable value for the preceding year.
• You are no longer the owner of the property, or will cease to be the owner of the property before the end of the provisional tax assessment year, resulting in a reduction in the assessable value.
• You have chosen to file personal income tax, which may result in a lower tax payment.
• You have lodged an objection to the property tax assessment for the previous year.

Conclusion

Understanding the definition, calculation methods, deductions, and deferred payment options for property tax, you can effectively reduce your tax expenses and avoid legal issues. Hiring a professional accounting team to handle your accounting work will make tax filing easier.

OneStart's professional accounting team has years of experience and is trusted by customers. OneStart provides one-stop business support services. For more information, please call 3575 6888 or WhatsApp OneStart Business Consultants.

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