Hong Kong Industrial Property Tax — Factories, Warehouses & Logistics

Under s.33 IRO, an industrial building includes buildings used for manufacturing, processing, storage, or transport of goods. At least 80% of the floor area must be used for qualifying industrial purposes. The rules are detailed in DIPN 10 and DIPN 49 — eligibility requires careful assessment.

The initial allowance (IA) is 20% of qualifying capital expenditure in the year the building is first used. Annual allowances (AA) are then 4% per year on the original qualifying cost, giving full recovery over 25 years. A balancing allowance or charge arises on disposal.

Yes, if the tenant uses the building for qualifying industrial purposes, you as landlord can claim IBA. You must be able to demonstrate the tenant's use meets the qualifying criteria, so tenant use confirmations should be obtained and retained.

On disposal, a balancing allowance or balancing charge is computed. If the sale proceeds are less than the tax written-down value, a balancing allowance (additional deduction) arises. If proceeds exceed the written-down value, a balancing charge (clawback) is assessed. This can significantly affect the net proceeds of sale.

IRD has accepted that purpose-built data centres used for storage and processing can qualify as industrial buildings under s.33 IRO. However, the qualifying use test and 80% floor area requirement still apply. Colocation facilities that primarily provide office space for clients may not qualify. Seek specific advice before filing.

The Government's revitalisation scheme permits industrial buildings over 15 years old to be converted to non-industrial uses. From a tax perspective, conversion triggers a balancing charge on previously claimed IBAs based on the market value at the time of change of use. Pre-conversion tax modelling is essential.