Whether you purchase a property in the name of a company or as an individual and lease it out, the rental income must be reported and taxed. When calculating the property tax payable, it is also necessary to consider whether the rental income is assessed under Personal Assessment or Property Tax.
The assessable value for property tax is determined based on the consideration paid for the right to use the property. This includes:
- Total rent received or receivable;
- License fees paid for the right to use the building;
- Lease premium (key money);
- Service and management fees paid to the owner;
- Repair costs paid by the tenant, etc.
Calculation of Rental Income for Properties Purchased by a Company
Corporate Rental Income:
Rental income from property held in the name of a company = Limited company income
Regardless of the type of property held by a limited company—including residential buildings, industrial/commercial buildings, offices, shops, or parking spaces—if the property is leased, all rental income must be assessed as company income and declared under Profits Tax during the annual accounting and tax filing. Rental income from properties held in an individual’s name must also be reported; by law, certain expenses can be deducted, and individual property tax can be calculated using either personal allowances or the standard property tax rate.
Method 1: Standard Property Tax Rate
Rental income from properties held in an individual’s name can apply for statutory deductions, including: rates paid by the owner, irrecoverable rent, and a statutory allowance for repairs and outgoings (20% of the net rental income after deducting other expenses ). This is calculated by taking the sum of the above three values x 80%, and finally multiplying by the standard rate of 15%.
Example:
Property Rent (1 year): HK$240,000
Irrecoverable Rent: HK$20,000
Rates paid by owner: HK$10,000
Calculation using the Standard Property Tax Rate Method
Step 1:
(1 year of property rent – Irrecoverable rent – Rates paid by owner) x Statutory allowance for repairs and outgoings = Net assessable value
Example: (HK$240,000 – HK$20,000 – HK$10,000) x 80% = HK$168,000
Step 2:
Net assessable value x Standard rate = Tax payable
Example: HK$168,000 x 15% = HK$25,200
Method 2: Utilizing Personal Assessment Allowances
Rental income from properties held in an individual’s name must be reported. If you choose Personal Assessment, the tax is calculated based on rental income after deducting personal allowances and mortgage interest paid for the leased property (capped at HK$50,000 per year), then applying progressive tax rates.
Example:
Owner is single, eligible for a basic allowance of HK$132,000
Property has no mortgage
Rental income: HK$240,000 per year
Calculated as Property Tax:
Rental income x Net assessable percentage x Standard rate = Property tax payable
(HK$240,000 x 80% x 15%) = HK$28,800
If you want to save on tax, choosing Personal Assessment is often better!
Calculated under Personal Assessment:
Step 1: Rental income – Basic allowance
Step 2: First HK$50,000 taxed at 2%
Step 3: Next HK$50,000 taxed at 6%
Step 4: Remaining balance taxed at 10% to 17% (progressive rates; rental income affects personal income)
Step 5: (1+2+3) = Tax payable
Example:
Step 1: HK$240,000 – HK$132,000 = HK$108,000
Step 2: First HK$50,000 taxed at 2% = HK$1,000
Step 3: Next HK$50,000 taxed at 6% = HK$3,000
Step 4: Remaining HK$8,000 taxed at 10% = HK$800
Step 5: (HK$1,000 + HK$3,000 + HK$800) = HK$4,800*.
*If calculated for the 2025/2026 tax year, you may also enjoy a HK$3,000 tax reduction, meaning the final tax payable would be HK$1,800, saving up to HK$27,000!
Legal Tax Saving = Tax Planning
In Hong Kong, both individuals and companies must comply with the Inland Revenue Ordinance by filing tax returns on time and paying taxes accordingly. For those with significant personal assets, tax reporting can be complex; accidental omissions or calculation errors may lead to risks of penalties for tax evasion. It is recommended that complex tax cases involve a professional tax consultant to conduct tax planning and assessments based on individual needs.
Professional tax consultants provide tailor-made tax planning for clients to legally enjoy the best tax benefits and pay the minimum amount of tax. General Accounting has over 20 years of experience in tax filing.
Hong Kong Tax Services include:
- Tax Planning
Based on different client backgrounds, we integrate profits from limited companies, unlimited companies, salaries, and rental income to ensure clients pay the minimum Hong Kong tax through the most favorable and legal tax-saving methods. - Individual Tax Filing
Providing professional tax planning based on client needs and specific cases, filing individual tax returns, and calculating assessable income and allowances. - Profits Tax Returns
Calculating tax for limited companies based on audited tax reports and the Inland Revenue Ordinance, providing tax computations and other required schedules. - Property Tax Returns
Reporting rental income from properties, calculating deductible expenses, and submitting property tax returns along with information required by the Inland Revenue Department. - Employer’s Returns
Providing professional information based on payroll data provided by the company to calculate and file employer’s returns for employees. - Acting as Tax Representative
Representing individuals, unlimited companies, or limited companies in applying for extensions, consulting, and following up on all tax matters with the Inland Revenue Department. - Objection to Assessments
Analyzing client cases and providing professional advice, representing clients in applying for objections to assessments or estimated assessments, and handling correspondence with the Inland Revenue Department. - Tax Assistance
If clients have any tax-related questions, General Accounting’s tax representatives can provide professional advice to help resolve tax difficulties. - Tax Investigation
Representing clients in responding to inquiries from the Inland Revenue Department during tax investigations and providing professional advice to resolve investigation issues. - Tax Litigation
Providing tax advice regarding tax litigation and resolving litigation matters reasonably and legally according to the requirements of the Inland Revenue Department.
Difference Between Tax Planning and Tax Evasion
Tax planning involves declaring income and expenses according to the Inland Revenue Ordinance. Professional tax services provide the most favorable tax filing solutions legally and compliantly within the framework of the law, allowing clients to pay the minimum tax.
Conversely, tax evasion is an illegal act, such as concealing income, intentionally providing false information when filing tax returns, or deliberately hiding true financial status to obtain improper tax benefits.
Upon conviction, the company and relevant personnel will be held legally liable. General penalties are as follows:
Fine of HK$10,000 on summary conviction;
Fine of HK$50,000 on indictment;
A fine of 3 times the amount of tax evaded;
Additional punitive tax of 3 times the amount of tax evaded;
6 months imprisonment on summary conviction; 3 years imprisonment on indictment.
Source: Inland Revenue Department – Penalty Policy
According to the Hong Kong Inland Revenue Ordinance, tax evasion is a criminal offense. Upon conviction, the Inland Revenue Department will prosecute the party involved, and the court may ultimately impose a prison sentence (maximum 3 years) and a fine of HK$50,000 for each charge, plus a further fine of 3 times the amount of tax undercharged. Furthermore, it is an offense for any person to submit an incorrect tax return without a reasonable excuse.
Penalties and Consequences for Omission of Rental Income
Recently, the Hong Kong Inland Revenue Department announced a case of tax evasion where a real estate agent omitted rental income. According to IRD data, a real estate agent was convicted of tax evasion in the District Court on March 15, 2024, and the judge adjourned the case for sentencing on April 19.
The defendant failed to report any property rental income in tax returns for the years of assessment 2008/09 to 2014/15, and only declared rental income and tax for one of the leased properties in the 2015/16 return. An IRD investigation revealed that the defendant, personally or through agents, sought tenants for 10 rental properties (4 of which were subdivided units), with rental income deposited into bank accounts belonging to the defendant, family members, or companies. A total of HK$4,605,711 in rental income was omitted or under-reported between 2008/09 and 2015/16, resulting in tax undercharged of HK$534,840.
Latest news on April 19, 2024: The real estate agent was sentenced to 7 months of immediate imprisonment and a fine of HK$240,000 (HK$20,000 for each charge).
Summary:
Tax evasion and concealment are serious crimes. Upon conviction, the maximum penalty is 3 years of imprisonment. Whether intentional or unintentional, under-reporting income is an illegal act of tax evasion.
Tax planning involves reporting all income and deducting all allowable expenses according to the law. Within the legal framework, it calculates the most favorable tax rate solution and ensures the minimum tax is paid. Therefore, both individuals and companies should follow professional tax filing advice to make full use of tax exemption policies and avoid inadvertently or carelessly violating Hong Kong’s tax laws.
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