Hong Kong: Domestic Corporate Taxation
Property tax is levied annually on the owner or occupier of real estate located in Hong Kong. Since ownership may be split (eg 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:
- 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 either to the owner or on behalf of the owner under the terms of the lease. In order to assist the inland revenue to assess the rental income the owner is obliged to keep records for up to 7 years and inform the tax authorities of the actual sums received.
- Property tax is based on the territorial principle and is levied on buildings, parts of buildings, wharves, piers and other structures located in Hong Kong. The fact that the owner is non resident, non domiciled or a national of a foreign country is completely irrelevant and does not exempt him from having to pay this tax.
- The tax rate is 15% (2008/9 onwards) of the assessed annual rental income.
- Property tax is levied on a provisional assessment basis which takes into account the previous year's rental income with a tax credit being granted where the previous year's rental income exceeds the current year's rental income. Relief is also given where part of the assessed rental income is a bad debt.
- The following types of property are exempted from this tax:
- The properties of foreign governments;
- Charitable bodies exempted from taxation;
- Business entities who derive profits from and pay profits tax on rental income derived from ownership of real estate are entitled to a set-off of property tax against profits tax with a tax credit being granted where the property tax exceeds the profits tax;
- A corporation which purchases a property for its own occupation does not pay property tax on the deemed rental income which it could have earned if it had rented out the building.
- It is advisable for properties to be owned by Hong Kong corporate entities since property tax does not make allowances for either depreciation or interest costs on a loan to finance the purchase, while such costs are deductible for corporate profits tax purposes. A foreign company cannot own real estate in Hong Kong unless it is registered as a foreign company under the provisions of the Companies Ordinance.