Property-Related Taxes in Hong Kong

Hong Kong generally applies a territorial basis of taxation, meaning that tax is primarily imposed on income arising in or derived from Hong Kong. For real estate investors, rental income from property situated in Hong Kong is therefore taxable in Hong Kong regardless of whether the owner is resident or non-resident.

Income Tax

Rental income received by an individual property owner is generally subject to property tax at 15% of the property's net assessable value. Hong Kong does not impose a general capital gains tax; however, profits from property transactions may be taxable where the activity is regarded as trading or business rather than the disposal of a capital investment.

Property Tax on Rental Income

Rental income from Hong Kong real estate is generally subject to property tax at a flat rate of 15%.

The tax is not calculated directly on gross rental income. In determining the property's net assessable value, the owner may generally deduct:

• irrecoverable rent;

• rates paid by the owner; and

• a statutory 20% allowance for repairs and outgoings.

The 20% allowance is applied regardless of the property's actual repair and maintenance expenditure.

Consequently, where there are no other adjustments and the tenant pays the rates, the calculation can be simplified as:

Gross rental income × 80% × 15% = Property tax

This produces an effective property-tax burden of approximately 12% of gross rental income.

Capital Gains

Hong Kong does not impose a general capital gains tax. Therefore, gains arising from the disposal of real estate held as a long-term capital investment are generally not taxable.

However, the distinction between a capital gain and taxable trading profit is important. If the Inland Revenue Department determines that the property was acquired and disposed of as part of a property-trading or profit-making activity, the resulting profit may instead be subject to profits tax.

Accordingly, the absence of capital gains tax should not be interpreted as an unconditional exemption for every gain arising from the sale of Hong Kong real estate.

Corporate Taxation

Companies carrying on business in Hong Kong are generally subject to Profits Tax on profits arising in or derived from Hong Kong. Rental income earned by a company from property situated in Hong Kong is generally treated as business income and is therefore subject to Profits Tax.

Hong Kong operates a two-tiered corporate Profits Tax system. For qualifying corporations, the first HKD 2 million of assessable profits is taxed at 8.25%, while assessable profits exceeding HKD 2 million are taxed at 16.5%.

Property Buying and Selling Costs in Hong Kong