Understanding Hong Kong’s Property Tax Framework for Foreign Investors

For foreign investors considering opportunities in Hong Kong’s dynamic real estate market, understanding the local tax landscape is essential. Hong Kong’s Property Tax system is straightforward and favorable compared to many jurisdictions, primarily targeting income generated from the letting of land and buildings within Hong Kong territory.

As of 2025, Hong Kong continues to maintain one of the world’s most investor-friendly property tax regimes. The elimination of the 15% Buyer’s Stamp Duty (BSD) for non-permanent residents in February 2024 has made the market significantly more accessible to foreign investors, who now pay the same stamp duty rates as Hong Kong permanent residents.

What is Property Tax in Hong Kong?

Property tax in Hong Kong is levied on the owners of land and/or buildings in the territory. The tax applies regardless of whether the owner is a resident or non-resident, individual or corporation. Hong Kong follows a territorial basis of taxation, meaning only rental income sourced within Hong Kong is subject to property tax.

Who Must Pay Property Tax?

Property tax applies to:

• Individual property owners (both Hong Kong residents and non-residents)
• Corporate entities owning property in Hong Kong
• Joint owners or co-owners of property
• Any person receiving rental income from land or buildings in Hong Kong

Important Exemption: Property occupied by the owner for self-use is not subject to property tax, as no rent is receivable. Additionally, corporations carrying on a trade, profession, or business in Hong Kong can apply for exemption from property tax if the rental income is already assessable under profits tax.

The 15% Standard Rate

Since 2008/09, Hong Kong has maintained a property tax rate of 15% on the net assessable value of rental properties. This rate has remained stable and continues to apply for the 2024/25 and 2025/26 tax years.

The net assessable value is calculated as:

Calculating Property Tax: Practical Examples

Example 1: Standard Residential Rental

Example 2: Commercial Property with Irrecoverable Rent

What Can and Cannot Be Deducted

Allowable Deductions

• Rates paid by the owner: Government-imposed rates actually paid during the year
• Irrecoverable rent: Rent that was included in assessable income but proved unrecoverable
• 20% Notional Allowance: Automatic deduction for repairs and outgoings (no documentation required)

Non-Deductible Expenses

The following expenses cannot be deducted from gross rental income for property tax purposes:

• Government rent
• Management fees and service charges
• Mortgage interest and loan repayments
• Renovation or refurbishment expenses
• Insurance premiums
• Legal and professional fees
• Agent commissions
• Repairs and maintenance (covered by the 20% allowance)

Note: The 20% notional allowance is intended to cover repairs and outgoings. Property owners cannot claim actual repair expenses in addition to this allowance.

Tax Registration and Filing Obligations for Non-Resident Landlords

Filing Requirements

Non-resident landlords are subject to the same filing requirements as Hong Kong residents. There is no separate registration process specifically for property tax – the Inland Revenue Department (IRD) will issue tax returns to property owners based on property ownership records.

Key filing information:

• Tax Return Forms: BIR57 (for jointly owned property) or BIR58 (for individually owned property)
• Issuance Date: Property tax returns are typically issued in May or June each year
• Filing Deadline: Within 1 month from the date of issue of the return
• Extension for E-filing: Automatic 2-week extension if filed online and meet specified criteria
• Important: Only original IRD-issued returns are acceptable for paper filing; photocopies, faxes, or downloaded forms are not accepted

Tax Assessment and Payment

The tax year in Hong Kong runs from 1 April to 31 March of the following year. Property owners will receive assessments for:

• Final Assessment: For the completed tax year (e.g., 2024/25)
• Provisional Assessment: For the current tax year (e.g., 2025/26)

Provisional property tax is typically payable in two installments during the year. If you don’t receive a tax return but have taxable rental income, you must notify the IRD within 4 months of the end of the basis period.

Penalties for Non-Compliance

Late filing or non-filing can result in serious consequences:

• Surcharges: 5-15% of the tax payable for late filing
• Estimated Assessments: IRD may issue assessments without allowable deductions
• Prosecution: In serious cases, penalties can reach three times the amount of underpaid tax
• Criminal Penalties: Fines and potential imprisonment for willful evasion

Additional Tax Considerations for Foreign Investors

Stamp Duty on Property Transactions

As of 28 February 2024, Hong Kong eliminated the 15% Buyer’s Stamp Duty (BSD) that previously applied to non-permanent residents. Foreign buyers now only pay the standard Ad Valorem Stamp Duty (AVD):

Ad Valorem Stamp Duty Rates (effective 26 February 2025):

• Properties up to HKD 4 million: HKD 100
• Properties over HKD 20 million: 4.25%
• Progressive rates apply between these thresholds

Stamp Duty on Lease Agreements

For lease of immovable property in Hong Kong, stamp duty is calculated based on the term of the lease:

• 0.25% of annual rental for lease periods not exceeding 1 year
• 0.5% of average annual rental for lease periods of 1-3 years
• 1% of average annual rental for lease periods exceeding 3 years

No Capital Gains Tax

Hong Kong does not impose capital gains tax on property sales held for investment purposes. This creates exceptional advantages for foreign investors:

• No capital gains tax on investment property sales
• No inheritance or estate tax on property transfers
• No value-added tax (VAT) or goods and services tax (GST)
• No dividends tax or wealth tax

Profits Tax vs. Property Tax

If you are a corporation carrying on business in Hong Kong and your rental income is assessable under profits tax, you can apply for exemption from property tax. This avoids double taxation on the same income. Individual investors cannot claim this exemption and must pay property tax on rental income.

Foreign Investor Compliance Checklist

Special Situations and Exemptions

Property Used for Charitable Purposes

Rental income may be exempt from property tax if the property is used for charitable purposes by:

• Charitable institutions or trusts of a public character
• Certain religious institutions
• Statutory bodies
• Approved educational institutions

Government and Consular Properties

Properties owned by the Hong Kong Government and consular properties are exempt from property tax.

Owner-Occupied Properties

Property occupied by the owner for personal use is not subject to property tax as no rent is receivable. This includes vacation homes used exclusively by the owner and not rented out.

Partial Rental Situations

If only part of a property is rented out, property tax applies only to the rental income from the let portion. The owner-occupied portion is not subject to property tax.

Practical Tips for Foreign Investors

1. Appoint a Tax Representative

If you are residing outside Hong Kong, consider appointing a qualified tax representative who can:

• Receive and respond to IRD correspondence on your behalf
• Prepare and file property tax returns accurately and on time
• Advise on tax planning strategies and compliance obligations
• Handle any disputes or enquiries from the IRD

2. Maintain Comprehensive Records

Keep detailed records of all property-related transactions for at least 7 years:

• Tenancy agreements and lease documents
• Rental payment receipts and bank statements
• Rates payment receipts
• Documentation of irrecoverable rent
• Correspondence with the IRD
• Property purchase and sale documents

3. Understand the Territorial Basis

Hong Kong’s territorial tax system means that only rental income from Hong Kong properties is taxable. If you own properties in other jurisdictions, income from those properties is not subject to Hong Kong tax, regardless of your residency status.

4. Consider Corporate Ownership Structures

Using a Hong Kong corporation to hold property may provide certain advantages:

• Potential exemption from property tax if rental income is assessed under profits tax
• More flexible expense deduction under profits tax regime
• Estate planning and succession benefits
• Limited liability protection

However, corporate ownership also has considerations including incorporation costs, annual compliance obligations, and potential application of Special Stamp Duty (SSD) on resales. Always seek professional advice before deciding on ownership structure.

5. Plan for Provisional Tax Payments

Hong Kong operates a provisional tax system where you pay tax in advance for the current year based on the previous year’s income. This means in any given year, you may be paying:

• Final tax for the previous year
• Provisional tax for the current year (in two installments)

Ensure you budget adequately for these tax obligations to avoid cash flow issues.

6. Stay Current with Law Changes

Hong Kong’s property tax regime is relatively stable, but stamp duty rates and property cooling measures can change. The February 2024 elimination of BSD for foreign buyers demonstrates how policy can shift. Stay informed through:

• Regular consultation with your tax advisor
• Monitoring IRD announcements and guidance
• Following Hong Kong Budget announcements (typically in February/March)

Common Questions from Foreign Investors

Do I pay more tax as a non-resident?

No. Non-resident landlords pay the same 15% property tax rate as Hong Kong residents. The tax treatment is identical regardless of residency status.

Can I deduct mortgage interest?

No. Mortgage interest and loan repayments are not deductible for property tax purposes. The only allowable deductions are rates paid by the owner, irrecoverable rent, and the automatic 20% notional allowance.

What if I rent to a related party at below-market rent?

The IRD may challenge arrangements where property is rented at significantly below-market rates, particularly to related parties. While you can set your own rental levels, be prepared to justify any below-market arrangements if questioned.

How is lease premium taxed?

Lump sum premiums received for granting a lease are included in rental income and subject to property tax at 15% (after the 20% deduction). The entire premium is taxed in the year it is received, even if it relates to multiple years of occupation.

What happens if I sell my property at a profit?

For investment properties held long-term, no capital gains tax applies in Hong Kong. However, if the IRD considers you to be trading in properties (frequent buying and selling, short holding periods, financing patterns suggesting trading intent), profits may be taxed as business income under profits tax at rates up to 16.5%.

Do I need a Hong Kong bank account?

While not legally required, having a Hong Kong bank account simplifies receiving rental income, paying property-related expenses, and settling tax obligations. Many landlords find it essential for efficient property management.

Can I claim the 20% allowance if I also claim actual repair costs?

No. The 20% notional allowance is automatic and intended to cover repairs and outgoings. You cannot claim actual repair expenses in addition to this allowance under property tax. However, if you elect for profits tax treatment (available to corporations), different rules may apply.