In the blog we will discuss some examples to understand about the owners of buildings and / or lands in Hong Kong, then we will explain that under what circumstances an owner of property in Hong Kong is not allowed to pay the property tax. Following that we will discuss a complete procedure that is to be adopted for the computation of property tax. For understanding completely we will be seeing an example first.   

In order to understand such scenario we will discuss an example, a piece of land was rented by Mr. Chan from HKSAR Government. This land was used by Mr. Chan as a car park for rental income. As Mr. Chan is lessee of HKSAR Government for the property that is owned by him for tax purposes to start up company Hong Kong. The rental income that is derived by him from letting of the land is allowable to property tax.

In other example it was observed that, a trust was set up by Mr. A Wong. This trust was set up by him to provide the benefit to his son’s life. The name of his son was Mr. B Wong. Mr. Luk was appointed as trustee by Mr. Wong in order to hold his flat. The flat was situated at South Horizon. Mr. Luk was appointed as trustee for this flat so his name was appeared as the registered owner of the flat in the land office at South Horizon. But this declaration of trust that was executed by Mr. Luk as trustee showed that he is only holder of the property to provide benefits to the life tenant named as Mr. B Wong. Mr. B Wong would be considered as the owner for purposes of property tax as he is the person who holds equitable interest in the flat.

Seeing another example, Mr. S Cheung made his last will in 2011. The property of Mr. S Cheung included different land / buildings and a flat that was situated in the Kowloon. Mr. Ho was appointed by Mr. S Cheung, as an executer of his estate. All of his above mentioned properties were gifted by him to his son named as Mr. T Cheung. He rented this flat to a person. Mr. S Cheung rented it to attain the rental income since 1 April 2008. Unfortunately, on 15 February 2012, Mr. S Cheung died. And after his death on 1 May 2014 Mr. Ho distributed his flat to his son, Mr. T Cheung. From 1 April 2010 to 15 February 2012 (the date of death of Mr. S Cheung) in respect of the rental income Mr. S Cheung remained owner for property tax purposes. As Mr. Ho was appointed as executor of the estate of Mr. S Cheung, so he was chargeable to tax on this property in respect of the income that was being attained as a result of renting that flat from 16 February 2012 to 30 April 2014. Mr. T Cheung remained the beneficial owner of the flat since 16 February 2011. On 1 May 2014, that flat was distributed to Mr. T Cheung. Mr. T Cheung is responsible to pay salary tax, in respect of the income that is attained by renting that flat from 1 May 2014 by him.

In a case D 27/98 related to company setup in Hong Kong, it was observed that, a building was incorporated by some owners. This building was subjected to the assessment of property tax. This tax was related to the license fee that is derived from car parking spaces or rental income. That car parking spaces formed part of the areas that was common among all the owners of the building and they had right to use. There was a management fund for the building. And the income derived from car parking spaces was deposited in that fund. It was held by board of revenue that incorporated owners of the building were responsible to property tax because:

  • As incorporated owners have rights to let-out car parks that are commonly-owned so these incorporated owners should be considered as owners.
  • In the definition of ‘owner’ an incorporated owner must be included for the purpose of property tax.

Owners not allowed to Pay Property Tax

The owners described below are not allowed to pay property tax for the purpose of buildings / land they owned.

  • Trust of a public character or charitable institutions that are approved under Section 88.
  • The SAR government of Hong Kong.
  • Consular --- the property that is used by residence of consular employees or for other purposes of consular.

Property Tax Computation

Under Section 5 (1) of Hong Kong tax law, on the net assessable value of buildings and/or land that is owned by a taxpayer for doing business in Hong Kong or for some other purposes the property tax is computed at the standard rate for concerned assessment year. The following procedure is adopted for computation of property tax on property.

 Name of Individual

Computation of Salaries tax

Assessment year 2015 to 16

Basic period: 1 April 2015 to 31 March 2016


Assessable value under Section 7C (2) and 5B                                              $ A

Less: bed debt or irrecoverable consideration under Section                                  $ (B)

 7 (c)                                                                                               --------Assessable value after bad debt deduction                                                        $ C

Less: rates paid by owner under Section                                                 $ (D)

 5 (1A) (b) (i) where owners are agreed to pay the rates                                        ---------

Assessable value after rates deduction                                                   $ E

Less: statutory deductions under Section                                                       $ (F)

 5 (1A) (b) (ii) at 20 %.                                                                   ---------

Net Assessable value under Section                                                                $ G

 5 (1A)                                                                                            ---------

Tax on property thereon at standard rates                                                      $ H

Section 5 (1)                                                                                    ---------

One key thing to note here is that, the following procedure is followed for the deduction to the rates for some quarters.


Quarter that ended 30 June.

Quarter that ended 30 September.

Quarter that ended 31 December.

Quarter that ended 31 March.

Maximum amount of rates that were waived per Quarter.

2009 to 10

N / A

N / A

$ 1,500

2010 to 11

$ 1,500

2011 to 12

$ 1,500

2012 to 13

$ 2,500

2013 to 14

$ 1,500

2014 to 15

N / A

N / A

$ 1,500

2015 to 16

$ 1,500

Allowable Value

Under the Section 5B (2) of Hong Kong tax law, AV or assessable value of property for the assessment year is the deliberation in worth of money or money itself. And this money or money’s worth is payable in that assessment year, for the benefit of or to the order of, in accordance with the right of use of that buildings or land for business registration Hong Kong or some other commercial uses.

In a case D 55/01 it was observed that, a property was owned by the person named as T. It was allowed by him to his mother to let the property out and keep the rent received by that property for her maintenance. It was stance by board of revenue that as T is the owner of that property so he is allowable to property tax.

Property tax is applicable to the consideration in the worth of money. Open market value or convertible value of assessable amount is its non-monetary consideration. As long as money consideration is concerned it includes any consideration that is payable for the provisions of any benefits or services attached with, or related to, the right of use of buildings and / or land.

Let’s consider a situation to understand any of such scenario, if management services such as cleaning, watchman etc. are provided by landlord and he / she charges the residents with such management fee then this fee is allowed to property tax.

The following items are included in the assessable value.

  • The premium of lump sum as described in DIPN 14.
  • Rent obtained from the lessee who used the land for start up company Hong Kong or for the residential purpose etc.
  • The payment that is paid for the right of use of furniture in the premises.
  • Management fee, service charges etc. That are paid to the owners.
  • The payment that is paid for the right of use of the premises under respected licenses for example, fee of advertisements on the roof or wall of a building and car parking fee.

In accordance with DIPN 4 (revised), the premiums on the leases are commonly referred to as tea or key money, tenancy rights, deposits that are non-returnable, construction fees or terms other than that. In dealing the business or letting of a property, a lease premium is a part of payment that is made to use the property. Due to the above mentioned reason it is an income having revenue nature and is allowable to profits tax.

In the assessment value the management fee that is responsibility of tenant will not be included. However, the assessment value will include this fee if such management fee is responsibility of landlord and paid to landlords by tenants. The only statutory deduction of 20 % will be allowed to landlord if the land is either used for doing business in Hong Kong or some other purposes. The landlord cannot receive the deductions for expenses that happened in actual and included by him for maintenance, management and repairs.

In a case D 48/07 it was observed that, license fee is held to be within the definition of assessment values. These license fee include expenses for installing antennae and equipment by telecom companies at common areas of residential blocks of a building.

Certain investment not to be treated as consideration if returns from alternative bond scheme

It was observed on 19 July 2013 that, Stamp Duty Legislation Ordinance 2013 and Inland Revenue department was approved to:

  • Amend the Inland Revenue ordinance to bring specific types of arrangements. These arrangements also known as Islamic financial arrangements and are equivalent economically for purposes of property tax and tax on profits, to debt instruments, comparable to those applying to arrangements for debts.    
  • Amend the Stamp duty in order to relieve the stamp duty in relation to those types of arrangements.

The approach that is adopted by legislation is known as a religion-natural approach. This approach and term known as ‘alternative bond scheme’ (AIBS) instead of ‘sukuk’ for the purpose of denoting the concerned agreements. Under Section 40 AB and in schedule 17A of Inland Revenue Ordinance the details are set out for specified ‘alternative bond scheme’ (AIBD) and its’ tax treatment.

An ‘alternative bond scheme’ consists of:

  • An arrangement for investment that is entered with originator by bond issuer, whereas it is undertaken by bond issuer:
  • To make other repayments (if applicable) such as (coupon or payments that are made additionally) to bond holders under Section 2 of Inland Revenue Ordinance.
  • To make a payment such as (the redemption payment) for saving the ‘alternative bond schemes’.
  • A bond arrangement that is made between bond holders and bond issuers by which alternative bonds are issued to bond holders by bond issuer in return for bond proceeds.     

Under a specified ‘alternative bond scheme’:

  • There may be a transfer of assets between:
  • Business undertaking (BU) and the originator.
  • Bond issuer and the originator.
  • Bond issuer holds, disposes and acquires the assets.
  • Under the scheme that is in favor of bond holders the bond issuer usually proclaims a trust over the assets.
  • If the specified assets by the bond undertaking consists of an interest in a BU formed by the originator and bond issuer.

For Purposes of Tax

  • The bond that begins paid to the bond issuer by bond holders are known as money that is borrowed from bond holders by bond issuers; and
  • The additional payments are also regarded as the interest payable on the money borrowed if it is payable to bond holders by bond issuer.
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