Did you know that Hong Kong’s property rates system offers specific exemptions that could save your business thousands of dollars annually? While most entrepreneurs focus on profits tax and salaries tax, understanding property rates exemptions can significantly impact your bottom line. Whether you’re operating an agritech startup, running a social enterprise, or managing retail premises, knowing which properties qualify for exemptions can transform your financial planning and operational costs.

Understanding Hong Kong’s Property Rates System

Property rates represent one of Hong Kong’s indirect taxes levied on property occupation, with revenue forming part of the Government’s general revenue. Unlike property tax (which taxes rental income at 15% after a 20% deduction), rates are charged on the estimated annual rental value of a property, regardless of whether it generates income. For entrepreneurs, this distinction is crucial: rates are payable whether your property is occupied or vacant, making exemptions particularly valuable.

Current Rates Structure (2024-2025)

Non-Domestic Properties

For all non-domestic properties—including commercial offices, retail shops, industrial premises, and business establishments—the rates percentage charge is a flat 5% of the rateable value. This applies regardless of the property’s value or location.

Domestic Properties – Progressive Rating System

Starting January 1, 2025, Hong Kong implemented a progressive rating system for higher-value domestic properties. This primarily affects luxury residences but also impacts entrepreneurs operating home-based businesses from high-value properties:

Legal Framework: Rating Ordinance (Cap. 116)

The Rating Ordinance (Cap. 116) provides the legal foundation for rates exemptions in Hong Kong. Section 36 establishes three categories of exemptions that entrepreneurs should understand:

Section 36(1): Exemption from Assessment

Properties exempt under this section do not appear in the Valuation List at all. These are fundamental exemptions built into the law, including agricultural properties and certain village houses.

Section 36(2): Class Exemptions

This provision empowers the Chief Executive in Council to declare any class of tenement or area exempt from payment of rates. These exemptions are implemented through the Rating (Miscellaneous Exemptions) Order.

Section 36(3): Individual Tenement Exemptions

The Chief Executive may exempt specific individual tenements (not classes) from payment of rates, either wholly or in part. This applies to particular properties on a case-by-case basis.

Key Exemption Categories for Entrepreneurs

1. Agricultural Properties

Agricultural land and buildings are exempt from assessment to rates under Section 36(1)(a) of the Rating Ordinance. This is particularly relevant for agritech startups, organic farms, and agricultural processing businesses.

• Qualifying criteria: Agricultural buildings must be situated on or adjacent to agricultural land and used wholly or mainly in connection with agricultural operations
• Dwelling houses: Those occupied in connection with agricultural land qualify if used by persons engaged wholly or mainly in agricultural operations
• Exclusion: This exemption does not extend to residential properties unless directly connected to agricultural use

2. Religious Worship Properties

Properties used for public religious worship enjoy exemption under two provisions. This is relevant for religious organizations running social enterprises or community services.

• Purpose-Built Religious Properties: Buildings constructed specifically for public religious worship, used wholly or mainly for religious purposes, and open to the public
• Adapted Properties: Premises adapted (not purpose-built) for religious worship, used wholly or mainly for public religious worship, and accessible to the public
• Important Note: The exemption requires public access. Private chapels or meditation rooms within commercial buildings typically do not qualify

3. New Territories Village Houses

Village house exemptions reflect Hong Kong’s unique historical context and indigenous rights. Entrepreneurs operating businesses from village houses should understand these rules:

4. Low Rateable Value Properties

Properties with rateable values below a prescribed threshold are exempt to avoid administrative costs exceeding revenue. The current threshold is HK$3,000.

• Primarily benefits very small retail kiosks and minor storage facilities
• Micro-businesses operating from tiny premises should verify their rateable value
• Threshold reviewed during each General Revaluation

2024-25 Budget Relief Measures

The Hong Kong Government announced targeted relief measures in the 2024-25 Budget to support property owners and businesses:

Complementary SME Support Measures

While not directly related to rates exemptions, entrepreneurs should be aware of complementary support measures that can reduce overall tax burden:

• Two-Tiered Profits Tax: First HK$2 million taxed at 8.25% (vs. standard 16.5% for corporations)
• Unincorporated Businesses: First HK$2 million taxed at 7.5% (vs. standard 15%)
• Record Retention: 7 years required for tax records
• Back Assessment Period: 6 years (10 years for fraud cases)

How to Apply for Rates Exemption

If you believe your property qualifies for rates exemption, follow this structured application process:

1. Verify Eligibility: Review the exemption categories and criteria outlined in the Rating Ordinance (Cap. 116)
2. Gather Documentation: Collect evidence supporting your exemption claim (agricultural land certificates, religious organization registration, indigenous villager documentation)
3. Submit Written Application: Write to the Rating and Valuation Department including property assessment number, complete address, grounds for exemption with legal basis, supporting documentation, and contact details
4. Await Review: The Rating and Valuation Department will assess your application (typically 4-8 weeks)
5. Receive Decision: You will be notified of the outcome in writing

Practical Scenarios for Entrepreneurs

Scenario 1: Tech Startup in Co-Working Space

Situation: Your startup operates from a small dedicated desk in a co-working space with a monthly fee of HK$2,500.
Rates Implication: You typically don’t pay rates directly (included in your co-working fee). The co-working space operator pays rates on the entire premises and benefits from the HK$500 first-quarter concession for 2024-25.

Scenario 2: Organic Farm Business in New Territories

Situation: You operate an organic vegetable farm with processing and storage facilities on agricultural land.
Potential Exemption: Agricultural land and buildings used for agricultural operations likely qualify for exemption. Apply to Rating and Valuation Department with evidence of agricultural use and operations.

Scenario 3: Home-Based Consulting Business

Situation: You run a consulting business from your home office in a domestic property with rateable value of HK$400,000.
Rates Calculation: Annual rates: HK$400,000 × 5% = HK$20,000. Q1 2024-25 after concession: HK$5,000 – HK$500 = HK$4,500 payable.
No exemption available: Using part of a domestic property for business purposes does not change its classification.

Common Misconceptions About Rates Exemptions

Rates vs. Government Rent vs. Property Tax

Entrepreneurs must understand these three distinct property-related charges, each with different exemption rules:

Strategic Considerations for Entrepreneurs

1. Property Selection and Budget Planning

• Calculate annual rates based on rateable value (check Rating and Valuation Department records)
• Account for quarterly payment schedule in cash flow planning
• Factor in temporary concessions but don’t rely on them long-term
• Consider rates as ongoing operational expense when evaluating property costs

2. Lease Negotiations and Documentation

• Clarify rates responsibility in lease agreements—some include rates in rent, others require separate tenant payment
• Negotiate who benefits from any government concessions
• Maintain comprehensive records: quarterly rates demand notes, payment receipts, exemption applications, and property use evidence

Navigating Hong Kong’s property rates exemptions requires careful planning and understanding of the legal framework. While exemptions are limited to specific categories, they can provide significant cost savings for eligible businesses. Remember that rates are just one component of your property costs—combine smart rates planning with Hong Kong’s other business-friendly tax measures, including the two-tiered profits tax system and various SME support programs. Always consult the Rating and Valuation Department for specific guidance and maintain proper documentation to support any exemption claims.