Did you know that commercial property owners and tenants in Hong Kong face two distinct property charges that can significantly impact their bottom line? While property rates apply to virtually all commercial premises, government rent affects only specific properties based on location and lease terms. Understanding these obligations isn’t just about compliance—it’s about smart financial planning, effective lease negotiations, and avoiding costly penalties. Let’s demystify Hong Kong’s property taxation system for commercial properties.

Understanding the Core Concepts: Rateable Value

Before diving into rates and government rent, you need to understand the foundation: rateable value. This is the estimated annual rental value of your property in the open market as at the designated valuation reference date. For the 2025-26 assessment year, the reference date was 1 October 2024, with valuations taking effect from 1 April 2025.

The Rating and Valuation Department (RVD) determines rateable values by analyzing actual open market rents for comparable properties in your area. They consider factors like:

• Property size, location, and accessibility
• Quality of finishes and facilities
• Transport connections and amenities
• Age and condition of the property
• Management and maintenance standards

Property Rates: The Universal Commercial Property Tax

What Are Property Rates?

Property rates in Hong Kong have been levied since 1845 under the Rating Ordinance (Cap. 116). This is an indirect tax on properties, with revenue forming part of the Government’s general income. Virtually all commercial properties in Hong Kong are liable for rates unless specifically exempted under Section 36 of the Rating Ordinance.

Current Rates for Commercial Properties

For the 2025-26 assessment year, commercial (non-domestic) properties are charged at a flat 5% of their rateable value. Unlike residential properties, which have progressive rates for high-value properties, commercial rates remain consistent regardless of property value.

Government Rent: The Selective Property Charge

What Is Government Rent?

Government rent is governed by the Government Rent (Assessment and Collection) Ordinance (Cap. 515), enacted on 30 May 1997. This is not a tax but a rent obligation under land leases from the Government, calculated at 3% of the rateable value.

Which Properties Pay Government Rent?

Unlike property rates, government rent applies only to specific properties:

• New Kowloon properties: Areas north of Boundary Street in Kowloon
• New Territories properties: Including outlying islands
• Post-1985 leases: Land leases granted on or after 27 May 1985
• Extended leases: Non-renewable land leases extended on or after 27 May 1985
• Properties with express obligation: Any property with a lease requiring 3% government rent

Side-by-Side Comparison

Real-World Calculation Examples

Let’s see how these charges work in practice with different commercial property scenarios:

Example 1: Central Office (Post-1985 Lease)

• Property: Commercial office in Central
• Lease: Granted in 1990 (subject to government rent)
• Rateable Value: HK$1,200,000
• Annual Rates: HK$1,200,000 × 5% = HK$60,000
• Annual Government Rent: HK$1,200,000 × 3% = HK$36,000
• Total Annual Cost: HK$96,000 (8% of rateable value)
• Quarterly Payment: HK$24,000

Example 2: Mong Kok Retail Shop (New Kowloon)

• Property: Ground floor retail in Mong Kok
• Location: New Kowloon (subject to government rent)
• Rateable Value: HK$800,000
• Annual Rates: HK$800,000 × 5% = HK$40,000
• Annual Government Rent: HK$800,000 × 3% = HK$24,000
• Total Annual Cost: HK$64,000
• Quarterly Payment: HK$16,000

Example 3: Sheung Wan Office (Pre-1985 Lease)

• Property: Commercial office in Sheung Wan
• Lease: Granted in 1980 (NOT subject to government rent)
• Rateable Value: HK$900,000
• Annual Rates: HK$900,000 × 5% = HK$45,000
• Annual Government Rent: Not applicable
• Total Annual Cost: HK$45,000 (5% of rateable value)
• Quarterly Payment: HK$11,250

Payment Schedule and Deadlines

Both rates and government rent are payable quarterly in advance. The Rating and Valuation Department issues electronic demands around early January, April, July, and October each year.

Commercial Lease Negotiation Strategies

When negotiating commercial leases in Hong Kong, clarity on rates and government rent is essential. Here are common approaches:

1. Gross Rent: Base rent includes rates and government rent (landlord responsible)
2. Net Rent: Tenant pays rates and government rent in addition to base rent
3. Hybrid Arrangements: Landlord pays government rent; tenant pays rates (or vice versa)
4. Express Provisions: Always include clear, specific language in the lease agreement

Due Diligence for Property Acquisition

Before acquiring commercial property, conduct thorough due diligence:

• Check current rateable value: Review the Valuation List on RVD’s Property Information Online
• Verify government rent applicability: Determine based on location and lease date
• Review land lease terms: Confirm government rent obligations
• Confirm payment status: Ensure no arrears exist (which could result in surcharges)
• Calculate ongoing costs: Factor rates and government rent into investment returns

Objections and Appeals Process

If you believe your property’s rateable value is incorrect, you have the right to object:

1. Submit Form R20A: File your proposal on or before 31 May of the year
2. Provide evidence: Show why the rateable value doesn’t reflect market rental value
3. Continue payments: You must still pay rates and government rent as demanded while your objection is pending
4. Appeal if necessary: If dissatisfied with the outcome, appeal to the Lands Tribunal

Navigating Hong Kong’s property rates and government rent system requires understanding both the universal and selective nature of these charges. By mastering these concepts, commercial property owners and tenants can make informed decisions, negotiate better lease terms, and avoid costly penalties. Remember to check your specific obligations through the Rating and Valuation Department’s online resources and consult with property professionals for complex situations.