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Interpretation of government government rent and rates for commercial properties in Hong Kong

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Written by Raymond Ho, FCCA Reviewed by TAX.hk Editorial Team Published Last updated
Interpretation of government government rent and rates for commercial properties in Hong Kong
Industry Topics
Navigating Hong Kong's Government Rent and Property Rates for Commercial Properties

📋 Key Highlights

  • Property Rates: Payable on all commercial properties in Hong Kong at a rate of 5% of the rateable value.
  • Government Rent: Charged at 3% of the rateable value, applicable only to specific properties (such as New Kowloon, the New Territories, and land granted after 1985).
  • Payment Cycle: Payable quarterly in advance (January, April, July, and October each year).
  • Valuation Reference Date (2025-26 Year): 1 October 2024 (effective from 1 April 2025).
  • Late Payment Penalties: An immediate 5% surcharge; an additional 10% surcharge after 6 months.
  • Legal Framework: Rating Ordinance (Cap. 116) and Government Rent (Assessment and Collection) Ordinance (Cap. 515).

As a commercial property owner or tenant in Hong Kong, are you fully aware of the two statutory expenses that directly impact your operating costs, in addition to Property Tax? "Rates" apply to almost all commercial properties, while "Government Rent" is levied only on specific properties. Understanding the calculation methods, payment liabilities, and relevant regulations for these two charges is not only a compliance requirement, but also essential for smart financial planning, effective lease negotiations, and avoiding unnecessary penalties. This article provides a comprehensive breakdown of the Rates and Government Rent system for Hong Kong commercial properties.

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Core Concept: Rateable Value

Before diving into Rates and Government Rent, it is essential to understand their calculation basis—Rateable Value. This refers to the estimated annual rental value of a property if it were let on the open market at a designated valuation reference date. Taking the 2025-26 assessment year as an example, the valuation reference date is 1 October 2024, and this valuation takes effect from 1 April 2025.

The Rating and Valuation Department determines the rateable value by analyzing actual open market rentals of similar properties in your area. Factors taken into account include:

  • Property size, location, and transport accessibility
  • Quality of finishes and facilities
  • Transport infrastructure and surrounding amenities
  • Building age and property condition
  • Standard of management and maintenance
⚠️ Important Note: The valuation assumes that the property is vacant and to let, with the tenant responsible for all usual tenant's rates and taxes, and the landlord responsible for government rent, repairs, insurance, and maintenance expenses.

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Property Rates: A Universal Commercial Property Levy

What Are Property Rates?

In Hong Kong, property rates have been levied since 1845 under the Rating Ordinance (Cap. 116). This is an indirect tax assessed on properties, and the revenue forms part of the Government's general revenue. Unless exempted under Section 36 of the Rating Ordinance, virtually all commercial properties in Hong Kong are subject to rates.

Current Rates for Commercial Properties

For the 2025-26 assessment year, the rates charge for commercial (non-residential) properties is fixed at a flat rate of 5% of the rateable value. Unlike high-value residential properties that are subject to a progressive rating system, the commercial rates percentage does not vary based on the property value.

💡 Pro Tip: Legally, both the property owner and the occupier (such as the tenant) are liable to pay rates. In practice, who actually pays depends on the tenancy agreement. Be sure to clearly stipulate this in the commercial lease to avoid disputes.

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Government Rent: A Selectively Levied 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. It is not a tax, but rather a rent obligation arising under Government land leases, calculated at 3% of the rateable value.

Which Properties Are Subject to Government Rent?

Unlike rates, Government rent applies only to specific properties:

  • New Kowloon Properties: Areas north of Boundary Street in Kowloon
  • New Territories Properties: Including the Outlying Islands
  • Leases Granted Post-1985: Land leases granted on or after 27 May 1985
  • Renewed Leases: Non-renewable land leases renewed on or after 27 May 1985
  • Properties with Explicit Obligations: Any property whose lease conditions stipulate the payment of 3% Government rent
⚠️ Important Note: The primary legal liability to pay Government rent rests with the property owner; however, the owner may contractually shift this liability to the tenant. Commercial leases should clearly specify who bears this cost.

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Rates vs. Government Rent Comparison

Comparison Item Property Rates Government Rent
Legal Basis Rating Ordinance (Cap. 116) Government Rent (Assessment and Collection) Ordinance (Cap. 515)
Commercial Property Tax Rate 5% of rateable value 3% of rateable value
Scope of Application Almost all properties Specific properties only
Primary Responsible Party Owners and occupiers Owner (can be passed on to tenants)
Payment Frequency Payable quarterly in advance Payable quarterly in advance
Late Payment Penalty Immediate 5% surcharge, additional 10% surcharge after 6 months Immediate 5% surcharge, additional 10% surcharge after 6 months

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Example Calculations

Let us look at how these charges are actually calculated through different commercial property scenarios:

Example 1: Central Office (Post-1985 Lease)

  • Property: Central commercial office
  • Lease: Granted in 1990 (Subject to Government Rent)
  • Rateable Value: HK$1.2 million
  • Annual Rates: HK$1.2 million × 5% = HK$60,000
  • Annual Government Rent: HK$1.2 million × 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: Mong Kok Street Shop
    • 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: Sheung Wan Commercial Office
    • 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

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    Payment Schedule and Deadlines

    Both Rates and Government Rent are payable quarterly in advance. The Rating and Valuation Department issues demand notes in early January, April, July, and October each year.

    Quarter Period Covered Notice Issued Payment Due Date
    4th Quarter (Previous Year) January to March Early January End of January
    First Quarter April to June Early April End of April Second Quarter July to September Early July End of July Third Quarter October to December Early October End of October
    ⚠️ Serious Warning: Late payments will immediately incur a 5% surcharge, followed by an additional 10% surcharge after 6 months. This means an overdue amount of HK$10,000, if left unpaid for 6 months, could ultimately increase to HK$11,550!

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    Commercial Lease Negotiation Strategies

    When negotiating commercial leases in Hong Kong, the responsibilities for rates and government rent must be clearly defined. The following are common arrangements:

    1. Gross Rent (All-inclusive): Base rent includes rates and government rent (payable by the landlord).
    2. Net Rent: The tenant is required to pay rates and government rent in addition to the base rent.
    3. Hybrid Arrangement: The landlord pays government rent while the tenant pays rates (or vice versa).
    4. Explicit Clauses: Ensure that clear and specific provisions are incorporated into the tenancy agreement.
    💡 Pro Tip: For properties subject to both charges, factor 8% of the rateable value (5% rates + 3% government rent) into your total annual cost budget. For properties exempt from government rent, budget 5% of the rateable value.

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    Key Due Diligence Considerations for Property Acquisitions

    Before acquiring a commercial property, comprehensive due diligence should be conducted:

    • Check Current Rateable Value: Review the Valuation List on the Rating and Valuation Department's "Property Information Online" platform.
    • Verify Government Rent Applicability: Determine applicability based on the property's location and lease date.
    • Review Land Lease Terms: Confirm the liability for government rent payments.
    • Confirm Payment Status: Ensure there are no outstanding arrears (otherwise, you may be liable for surcharges).
    • Calculate Ongoing Expenses: Factor rates and government rent into investment return calculations.

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    Objection and Appeal Procedures

    If you consider that the rateable value of your property is incorrect, you have the right to lodge an objection:

    1. Submit Form R20A: Submit your proposal on or before May 31 of the year.
    2. Provide Evidence: Explain why the rateable value does not reflect market rent levels.
    3. Continue Payment: You must still pay the rates and Government rent as demanded while the objection is being processed.
    4. Appeal if Necessary: If you are dissatisfied with the outcome, you may lodge an appeal with the Lands Tribunal.
    ⚠️ Important Notice: Non-receipt of a demand note is not a valid excuse for late payment. You are responsible for ensuring timely payment regardless of whether a notice is received.

    ✅ Key Takeaways

    • Rates (5%) apply to all commercial properties, whereas Government rent (3%) applies only to specific properties based on location and lease terms.
    • Both charges are calculated based on the rateable value—the estimated annual market rental value determined by the Rating and Valuation Department.
    • Charges must be paid quarterly in advance, with severe late payment penalties (an immediate 5% surcharge, and an additional 10% after 6 months).
    • Commercial leases should clearly stipulate who is responsible for each payment to avoid disputes between landlords and tenants.
    • For properties subject to both charges, 8% of the rateable value should be budgeted toward the total annual cost.
    • During property acquisition due diligence, be sure to verify the applicability of Government rent and check for outstanding arrears.

    To properly handle property rates and Government rent in Hong Kong, the key lies in understanding the universal versus selective nature of these two charges. Armed with these concepts, commercial property owners and tenants can make better-informed decisions, negotiate more favorable lease terms, and avoid costly penalties. It is recommended that you verify your specific liabilities via the Rating and Valuation Department's online resources and consult property professionals for complex cases.

    📚 Sources

    The content of this article has been verified against official Hong Kong Government data and authoritative reference sources:

  • Rating and Valuation Department - Property rates and valuation
  • GovHK - Official portal of the HKSAR Government
  • Legislative Council - Tax legislation and amendments
  • Rating and Valuation Department - Rates Information - Official rates calculation and payment guidelines
  • GovHK - Guide to Government Rent - Official government rent information

    • Last updated: December 2024 | The information in this article is for general reference only. Please consult a qualified tax professional for specific inquiries.

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    About the Author

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    Written by

    Raymond Ho, FCCA

    Tax Content Specialist at tax.hk

    Raymond Ho is an industry specialist with deep expertise in sector-specific tax issues including fintech, property development, and manufacturing. He is a Fellow of the Association of Chartered Certified Accountants.

    952 Articles Verified Expert

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