Are you earning rental income from serviced apartments in Hong Kong? With the city’s thriving hospitality sector and growing demand for flexible accommodation, serviced apartments have become a lucrative investment. But navigating the tax implications can be complex. Unlike traditional residential rentals, serviced apartments blend property letting with hospitality services, creating unique tax considerations. This comprehensive guide breaks down everything you need to know about Hong Kong’s property tax rules for serviced apartments in 2024-2025.

Understanding Serviced Apartments: Tax Classification Matters

Serviced apartments occupy a unique position in Hong Kong’s property market, sitting between traditional residential rentals and hotel operations. They provide furnished accommodation bundled with services like cleaning, maintenance, security, and sometimes concierge or facility access. This hybrid nature creates important tax implications that every owner must understand.

Property Tax vs. Profits Tax: Which Applies?

For most serviced apartment operations in Hong Kong, income is subject to Property Tax rather than Profits Tax. The Inland Revenue Department (IRD) generally treats the bundled revenue from accommodation and integrated services as rental income. This classification applies even though you’re providing additional services beyond basic accommodation.

What Constitutes Taxable Income?

Accurately identifying all taxable revenue streams is crucial for compliance. For serviced apartments, this includes several components that might not apply to traditional residential rentals.

Calculating Your Property Tax Liability

Hong Kong’s property tax calculation follows a specific formula. For the 2024-2025 tax year, the rate remains at 15% on the net assessable value. Here’s how it works for serviced apartments:

1. Step 1: Calculate Gross Rental Income – Sum all rental payments, bundled service charges, and ancillary fees received during the tax year (April 1 to March 31)
2. Step 2: Deduct Rates Paid – Subtract any government rates you paid on the property
3. Step 3: Apply 20% Statutory Allowance – Multiply the result by 80% (this represents the automatic 20% deduction for repairs and outgoings)
4. Step 4: Apply Tax Rate – Multiply the net assessable value by 15%

The formula looks like this: Property Tax = (Rental Income – Rates Paid) × 80% × 15%

Additional Deductions You Can Claim

Beyond the automatic 20% allowance, you can claim specific expenses directly related to earning your rental income:

• Management Agent Commissions – Fees paid for marketing, tenant liaison, and service coordination
• Mortgage Interest – Interest on loans used to acquire the property (subject to specific limitations)
• Capital Allowances – Depreciation on furniture, fixtures, and equipment used in the serviced apartment
• Actual Repair Costs – If they exceed the 20% statutory allowance, you can claim the actual amount

Personal Assessment: A Potential Tax-Saving Option

Individual owners of serviced apartments have an important option: electing for Personal Assessment. This allows you to combine your rental income with other personal income sources (like employment earnings) and be taxed under Salaries Tax progressive rates instead of the flat 15% property tax rate.

Personal Assessment becomes advantageous when:

• Your total income falls within lower progressive tax brackets
• You have substantial deductions like home loan interest (max HK$100,000/year)
• You make significant charitable donations (max 35% of assessable income)
• You have tax losses from other income sources

Compliance Requirements and Deadlines

Operating serviced apartments in Hong Kong comes with specific compliance obligations. Missing deadlines or inadequate record-keeping can lead to penalties and interest charges.

Essential Compliance Checklist

1. Annual Property Tax Return – File by the January deadline each year for the preceding tax year (April 1 – March 31)
2. 7-Year Record Retention – Keep all supporting documents for 7 years after the tax year ends
3. Provisional Tax Payments – Pay estimated tax based on previous year’s assessment by due dates
4. Accurate Tenant Records – Maintain details for verification if requested by IRD

Required Documentation

Keep these documents organized and accessible:

• Rental agreements and contracts
• Receipts for all rental payments received
• Bank statements showing income deposits
• Invoices for repairs, maintenance, and management fees
• Purchase receipts for furniture and equipment (for capital allowances)
• Utility bills and rates payment records

Common Pitfalls and How to Avoid Them

Even experienced operators can make costly mistakes. Here are the most common errors and how to prevent them:

Expense Apportionment for Mixed-Use Properties

If your serviced apartment shares facilities or you use part of the property personally, you must apportion expenses fairly:

• Utilities with Shared Meters: Apportion based on rental area percentage or usage records
• Building Management Fees: Use unit share allocation from the deed or management structure
• Repairs to Shared Structures: Calculate proportion benefiting the rental portion

Licensing and Regulatory Considerations

Beyond tax compliance, serviced apartment operators must consider licensing requirements. While tax treatment generally follows property tax rules, operational licensing may differ based on your business model.

Navigating Hong Kong’s tax rules for serviced apartments requires careful attention to both property tax principles and the unique aspects of bundled service offerings. By understanding what constitutes taxable income, claiming all allowable deductions, and maintaining rigorous compliance practices, you can optimize your tax position while staying fully compliant. Remember that tax planning for serviced apartments isn’t just about minimizing liability—it’s about accurate reporting that reflects the true nature of your hospitality-oriented rental business. Consider consulting with a Hong Kong tax professional who specializes in property investments to ensure your specific circumstances are properly addressed.