Did you know that nearly 40% of Hong Kong’s tax revenue comes from property-related taxes? If you’re earning rental income from property in Hong Kong, understanding how to properly report and calculate your tax liability is crucial. Whether you’re renting out a residential flat, commercial space, or even a parking spot, the Inland Revenue Department (IRD) expects accurate reporting of all property income. This comprehensive guide will walk you through everything from what counts as taxable income to how to optimize your deductions and avoid common pitfalls.

What Counts as Taxable Rental Income?

The IRD takes a broad view of what constitutes taxable rental income. It’s not just your monthly rent check—virtually all payments you receive from tenants in connection with letting your property are taxable. This comprehensive approach ensures you report your full income accurately and avoid potential penalties.

Included in Taxable Income

The following payments must be included in your taxable rental income:

• Regular monthly rent – The core recurring payment specified in your lease agreement
• Premiums or “key money” – Lump-sum payments received at the start of a lease
• Lease variation payments – Compensation for allowing changes like sub-letting or different property use
• Service charge contributions – If paid to you as part of the rent structure
• Short-term rental income – From platforms like Airbnb (often overlooked but fully taxable)

Excluded from Taxable Income

Payments that bypass you as the landlord are generally excluded:

• Management fees paid directly by tenant to management company
• Utility bills settled directly by tenant with service providers
• Security deposits (unless forfeited and kept by you)

How Property Tax is Calculated (2024-25 Rates)

Hong Kong’s property tax is calculated at a flat rate of 15% on the net assessable value of your property. The calculation follows a specific formula that allows for certain deductions before applying the tax rate.

The Standard Calculation Formula

Here’s the official formula used by the IRD:

The 80% multiplier represents the statutory 20% allowance for repairs and outgoings. This is automatically applied unless you choose to claim actual expenses instead.

Real-World Calculation Example

Deductible Expenses: What You Can Claim

Understanding which expenses are deductible can significantly reduce your tax liability. The IRD allows deductions for costs incurred “wholly and exclusively” in producing rental income.

Commonly Approved Deductions

• Rates – Property rates paid by you as owner
• Government Rent – Annual government rent payments
• Building Insurance – Fire and essential insurance premiums
• Repairs & Maintenance – Routine fixes to maintain property condition
• Management/Agent Fees – Professional property management costs
• Mortgage Interest – Interest on loans used to acquire rental property (subject to limits)

Revenue vs. Capital Expenditure: Critical Distinction

Step-by-Step Reporting Process

Reporting rental income correctly involves specific forms and deadlines. Here’s your complete guide to the annual reporting process:

1. Step 1: Receive Your Tax Return – Individual tax returns (BIR60) are typically issued in early May each year
2. Step 2: Complete IR612 Form – The dedicated Property Tax Return form requires detailed rental income and expense information
3. Step 3: Choose Filing Method – Electronic filing via eTAX or traditional paper submission
4. Step 4: Submit by Deadline – Typically due within 1 month of issue (around early June)
5. Step 5: Pay Provisional Tax – Based on previous year’s assessment, paid in two instalments

Special Property Ownership Situations

Different ownership structures require specific reporting approaches. Here’s how to handle common special cases:

Co-Ownership Properties

For properties held jointly or in common, income and expenses must be apportioned according to ownership shares:

Inherited Properties

Rental income from inherited properties is taxed the same as any other rental income. The inheritance itself isn’t taxable (Hong Kong has no inheritance tax), but ongoing rental income must be reported by the beneficiary who becomes the legal owner.

Overseas Properties

Hong Kong operates on a territorial basis—only Hong Kong-sourced income is taxable. Rental income from properties located outside Hong Kong is generally not subject to Hong Kong property tax, unless it’s connected to a Hong Kong business operation.

Common Mistakes to Avoid

Even experienced landlords can make errors in rental income reporting. Here are the most common pitfalls and how to avoid them:

• Omitting Short-Term Rental Income – Airbnb and similar platform income must be reported
• Misclassifying Capital vs. Revenue Expenses – Major improvements aren’t deductible repairs
• Poor Record-Keeping – Lack of documentation for claimed expenses
• Forgetting Vacancy Periods – Documenting when property was empty helps justify income figures
• Missing Deadlines – Late filing can result in penalties and interest charges

Future-Proof Your Tax Position

Smart landlords think beyond annual compliance. Here’s how to build a system that makes tax reporting easier year after year:

Properly managing your rental income tax obligations doesn’t have to be overwhelming. By understanding what constitutes taxable income, mastering the calculation formula, maintaining organized records, and avoiding common pitfalls, you can ensure compliance while optimizing your tax position. Remember that while this guide provides comprehensive information, every property situation is unique. Consider consulting with a qualified Hong Kong tax professional for personalized advice tailored to your specific circumstances.