Hong Kong Hotel & Serviced Apartment Tax — Hospitality Operator Guide

Hotel room revenue and all ancillary income (F&B, spa, events, parking) are subject to profits tax at 16.5% as business income — not property tax. This is because hotel operations constitute a trade or business, not mere passive letting. The hotel operator's profits tax return (BIR52) must report all these income streams.

Hotels can claim: (1) Wear and tear allowances on FF&E under s.39B/39C IRO at 60% initial + 10-30% annual; (2) Industrial Building Allowances if the hotel building qualifies under s.33 (commercial hotels generally do not, but there are exceptions for qualifying hotels); (3) Renovation and refurbishment costs may qualify as revenue deductions if they restore rather than improve assets.

Management fees paid to an overseas operator or franchisor are deductible in Hong Kong if they are: (a) incurred wholly and exclusively to produce chargeable profits; (b) not capital in nature; and (c) not subject to transfer pricing adjustments. IRD's DIPN 49 provides guidance on service fees to related parties. For large hotel groups, an advance ruling on fee deductibility is strongly recommended.

The distinction affects whether stays are classified as property income (property tax) or business income (profits tax). Hotels and serviced apartments providing substantial services (daily cleaning, reception, concierge, linen) are generally treated as running a business subject to profits tax. Long-term residential lets (28+ days) with minimal services are more likely to be treated as property income. The boundary depends on the level and nature of services provided.

Refurbishment that restores the property to its original condition (repairs) is generally revenue expenditure and immediately deductible. Refurbishment that improves or extends the useful life of the asset is capital expenditure and must be claimed through capital allowances over multiple years. In practice, major hotel refurbishments are a mix — professional advice is needed to apportion correctly and maximise the revenue deduction portion.

No. Hong Kong does not have GST, VAT, or sales tax. Hotel room revenue and all ancillary services are not subject to consumption tax. This is a significant competitive advantage for Hong Kong hospitality operators compared to Singapore (9% GST) or Europe (VAT rates of 20%+).