What is Property Tax (Hong Kong)?

**When Property Tax applies**

Property Tax is assessed on the owner of any land or buildings in Hong Kong that generates rental income. It applies to both individuals and companies, though companies typically elect to pay Profits Tax instead (see below).

**Net Assessable Value (NAV) calculation**

Step 1: Total rental income received or receivable in the year of assessment. Step 2: Deduct any rates paid by the owner (government rates, typically 5% of rateable value, paid quarterly). Step 3: Deduct 20% statutory allowance for repairs and outgoings (this is a flat deduction - actual maintenance costs are irrelevant).

Result: NAV. Property Tax = NAV x 15%.

No deduction is permitted for: - Depreciation of the building - Mortgage interest paid by the owner - Management fees and insurance (covered by the 20% flat deduction) - Vacant periods

**Interaction with Profits Tax: the election to be assessed under Profits Tax**

Companies holding property as part of their trading or investment activities typically elect to have their rental income assessed under Profits Tax instead of Property Tax. This is advantageous because: 1. Actual management expenses and loan interest (if the property was purchased using debt) are deductible under Profits Tax but not under Property Tax. 2. Losses from the property business can be offset against other trading income. 3. The lower two-tier rate (8.25% on first HKD 2M) may apply.

The election is irrevocable once made. Sole owners who are not carrying on a trade can apply for a personal assessment (combining salaries tax, property tax, and other income) if this produces a lower overall liability.

**Mortgage interest relief for individuals**

Individuals paying mortgage interest on a residential property they occupy may claim home loan interest under Salaries Tax (up to HKD 100,000 per year for up to 20 years). This relief does not apply to rental properties charged to Property Tax.

**Vacant land and properties**

If a property is vacant throughout the year, no rental income arises and no Property Tax is assessed. However, the owner must still file returns for years in which the property is vacant if previously rented.