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Short-Term vs. Long-Term Rentals in Hong Kong: Tax Treatment Compared

August 3, 2022 Michael Lee, CTA Comments Off
Published: August 3, 2022Updated: December 9, 2025Reading Time: 7 min

📋 Key Facts at a Glance

  • Tax Rate: Property tax is 15% on net assessable value (rental income minus rates paid, with 20% statutory allowance)
  • Legal Distinction: Short-term rentals (less than 28 days) require Hotel and Guesthouse Accommodation Ordinance licensing
  • Record Keeping: All rental income must be declared to IRD, with records kept for 7 years

Thinking of renting out your Hong Kong property? Whether you’re considering Airbnb-style short-term lets or traditional long-term leases, understanding the tax implications is crucial for maximizing your returns while staying compliant. Hong Kong’s property market offers attractive rental yields, but the tax treatment varies significantly based on your rental strategy. This comprehensive guide breaks down everything you need to know about navigating Hong Kong’s tax system for both short-term and long-term rentals in 2024-2025.

The Legal Landscape: Short-Term vs. Long-Term Rentals

Hong Kong’s regulatory framework draws a clear line between short-term and long-term rentals, and this distinction has significant implications for property owners. Traditional residential leases typically span one to two years and are governed by standard landlord-tenant legislation. However, when you venture into short-term rentals—those lasting less than 28 days—you’re entering a different regulatory territory.

⚠️ Important: Operating short-term rentals (less than 28 days) without a license under the Hotel and Guesthouse Accommodation Ordinance is illegal in Hong Kong. This applies to Airbnb-style rentals, holiday lets, and any transient accommodation. The licensing requirements include compliance with stringent fire safety, building, and health standards that exceed typical residential requirements.

The 28-Day Rule: Why It Matters

The 28-day threshold isn’t arbitrary—it’s the legal dividing line between residential tenancies and commercial hospitality operations. Properties rented for periods shorter than 28 days fall under the Hotel and Guesthouse Accommodation Ordinance, requiring specific licensing and compliance with hospitality industry standards. This includes:

  • Fire safety certificates and regular inspections
  • Building safety compliance certificates
  • Health and sanitation standards
  • Maximum occupancy limits
  • Public liability insurance requirements

Tax Obligations: Property Tax vs. Profits Tax

Regardless of rental duration, all Hong Kong property owners generating rental income face tax obligations. The primary tax is Property Tax, calculated at 15% on the net assessable value. Here’s how it works:

Component Calculation Example (HK$30,000 monthly rent)
Annual Rental Income Monthly rent × 12 HK$360,000
Less: Rates Paid Actual rates paid HK$10,000
Statutory Allowance (20%) (Rental income – rates) × 20% HK$70,000
Net Assessable Value (Rental income – rates) × 80% HK$280,000
Property Tax Payable Net assessable value × 15% HK$42,000
💡 Pro Tip: The 20% statutory allowance for repairs and outgoings is automatically applied, so you don’t need to provide receipts for these expenses. However, if your actual expenses exceed 20%, you can elect to claim actual expenses instead—just ensure you have proper documentation.

When Profits Tax Applies

If your rental activities constitute a business operation (common with short-term rentals or multiple properties), you may need to pay Profits Tax instead of Property Tax. The key distinction is whether you’re actively managing the property as a business. For corporations, Profits Tax rates are:

  • First HK$2 million: 8.25%
  • Remainder: 16.5%

For unincorporated businesses (sole proprietorships or partnerships), the rates are 7.5% on the first HK$2 million and 15% on the remainder.

Deductible Expenses: What You Can Claim

The nature and frequency of deductible expenses vary significantly between short-term and long-term rentals. Understanding these differences can help you maximize legitimate deductions while maintaining compliance.

Expense Type Short-Term Rentals Long-Term Rentals
Repairs & Maintenance Frequent, cosmetic repairs due to high turnover Less frequent, structural/system repairs
Management Fees Higher (booking, cleaning, guest services) Lower (rent collection, inspections)
Utilities Usually included, fully deductible Often tenant-paid, limited deduction
Insurance Higher premiums, specialized coverage Standard landlord insurance
Depreciation on Furnishings Significant due to high-quality furnishings Variable, depends on furnishing level

Capital Allowances: A Hidden Advantage

One significant advantage for short-term rental operators is the ability to claim capital allowances (depreciation) on furniture, fixtures, and equipment. Since short-term rentals typically require higher-quality furnishings and more frequent replacements, these deductions can be substantial. You can claim:

  1. Initial Allowance: 60% of the cost in the first year
  2. Annual Allowance: 10%, 20%, or 30% depending on asset type
  3. Balancing Allowance/Charge: When you dispose of the asset

Income Patterns and Tax Planning

The duration of your rental agreements dramatically affects income patterns and tax planning strategies. Long-term leases provide stability, while short-term rentals offer flexibility but with greater volatility.

Factor Short-Term Rentals Long-Term Rentals
Income Consistency Variable, seasonal, rate-dependent Stable, predictable monthly income
Vacancy Impact Frequent short gaps between bookings Infrequent but potentially longer gaps
Record-Keeping Complex, multiple transactions Simple, regular payments
IRD Scrutiny Risk Higher due to income variability Lower with consistent reporting

Practical Tax Calculation Example

Let’s compare two identical properties in the same building:

Property A (Short-Term): Average HK$500/night, 70% occupancy = HK$127,750 annual income. Expenses include HK$25,000 management fees, HK$15,000 cleaning, HK$8,000 utilities, HK$10,000 repairs. Net assessable value after 20% allowance: approximately HK$55,800. Property tax: HK$8,370.

Property B (Long-Term): HK$30,000/month fixed rent = HK$360,000 annual income. Expenses include HK$5,000 management, HK$3,000 repairs. Net assessable value after 20% allowance: HK$280,000. Property tax: HK$42,000.

💡 Pro Tip: For short-term rentals, consider using property management software that automatically tracks income and expenses. This not only simplifies tax reporting but also provides audit trails that can be crucial if the IRD questions your returns.

Compliance Essentials for 2024-2025

Staying compliant requires attention to several key areas, especially with recent regulatory changes:

  1. Record Retention: Keep all rental income and expense records for 7 years (the IRD’s back assessment period)
  2. Timely Filing: Individual tax returns are typically due within 1 month of issue (early June)
  3. Accurate Reporting: Declare all rental income, including security deposits that become income
  4. Licensing Compliance: Ensure proper licensing for short-term rentals under the Hotel and Guesthouse Accommodation Ordinance
  5. Mortgage Interest: If applicable, you can deduct mortgage interest up to HK$100,000 annually for properties acquired for rental purposes
⚠️ Important: The IRD has increased its scrutiny of rental income, particularly from short-term rentals. They now have sophisticated data-matching capabilities and can cross-reference information from property platforms, bank records, and other sources. Under-reporting rental income can result in penalties of up to three times the tax undercharged plus interest at 8.25% (from July 2025).

✅ Key Takeaways

  • Property tax is 15% on net assessable value with automatic 20% allowance for repairs
  • Short-term rentals (under 28 days) require specific licensing and face stricter regulations
  • Deductible expenses vary significantly between rental models—track them meticulously
  • Consider capital allowances for furnishings, especially valuable for short-term rentals
  • Maintain records for 7 years and be prepared for increased IRD scrutiny

Whether you choose short-term or long-term rentals in Hong Kong, understanding the tax implications is essential for maximizing returns while staying compliant. Short-term rentals offer potentially higher yields but come with regulatory complexity and higher operational costs. Long-term rentals provide stability and simpler compliance. Whichever path you choose, proper record-keeping, accurate reporting, and professional advice when needed will ensure your rental property remains a profitable and compliant investment. Consider consulting a Hong Kong tax professional to develop a strategy tailored to your specific circumstances.

📚 Sources & References

This article has been fact-checked against official Hong Kong government sources and authoritative references:

Last verified: December 2024 | Information is for general guidance only. Consult a qualified tax professional for specific advice.

Michael Lee, CTA

Property Tax Consultant, CTA

Michael Lee is a Chartered Tax Adviser specializing in property taxation and stamp duty matters with extensive experience in real estate transactions.

CTAMRICSHKIS12+ Years Exp.
Disclaimer: This article is for general informational purposes only and does not constitute professional tax advice. Tax laws and regulations are subject to change. Please consult a qualified tax professional or the Hong Kong Inland Revenue Department for advice specific to your situation.

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