Over the years, Hong Kong has been recognised as an important gateway to China. Its close proximity to China enables it occupying a prime position to benefit from the fast growing China economy. Besides, Hong Kong has good legal system, no exchange control in place, and simple tax system with low tax rates. These conditions, all together, attract many non-Hong Kong residents to buy Hong Kong properties for investment.
A non-Hong Kong resident may acquire commercial, industrial or residential properties in Hong Kong. This article provides some basic information on the taxation and related issues of owning properties in Hong Kong by non-Hong Kong residents.
Stamp duty
Stamp duty is payable on conveyances on sale, agreements for sale or transfer and leases of immovable properties in Hong Kong.
Stamp duty – Conveyances on sale and agreements for sale/transfer
Stamp duty is charged at rates according to the amount or value of the consideration as follows:
Amount or value of the consideration |
|
Exceeds |
Does not exceed |
Stamp duty amount |
|
|
|
|
HK$2,000,000 |
HK$100 |
HK$2,000,000 |
HK$2,351,760 |
HK$100 + 10% of excess over HK$2,000,000 |
HK$2,351,760 |
HK$3,000,000 |
1.5% |
HK$3,000,000 |
HK$3,290,320 |
HK$45,000 + 10% of excess over HK$3,000,000 |
HK$3,290,320 |
HK$4,000,000 |
2.25% |
HK$4,000,000 |
HK$4,428,570 |
HK$90,000 + 10% of excess over HK$4,000,000 |
HK$4,428,570 |
HK$6,000,000 |
3% |
HK$6,000,000 |
HK$6,720,000 |
HK$180,000 + 10% of excess over HK$6,000,000 |
HK$6,720,000 |
|
3.75% |
Stamp duty – Lease
Stamp duty is calculated at rates according to the term of the lease as follows:
Term |
Calculation of stamp duty |
Not defined or is uncertain |
0.25% x yearly or average yearly rent |
Exceeds |
Does not exceed |
|
|
1 year |
0.25% x total rent payable over the term of the lease |
1 year |
3 years |
0.5% x yearly or average yearly rent |
3 years |
- |
1% x yearly or average yearly rent |
Key money, construction fee etc. mentioned in the lease |
3.75% of the consideration if rent is also payable under the lease. Otherwise, same duty as for a sale of immovable property |
Duplicate or counterpart |
$5 each document |
Property investment under individual name
Non-resident individual owner earning rental income from property letting in Hong Kong is subject to Property Tax.
Tax calculation
Property tax is computed at the standard rate, currently 15%, on the net assessable value of property from 1 April to 31 March of the following year. The net assessable value is computed as follows:
-
|
|
Rental Income |
-
|
Less: |
Irrecoverable Rent |
-
|
Less: |
Rates paid by owner(s) |
-
|
|
Assessable Value (A - B - C) |
-
|
Less: |
Statutory allowance for repairs and outgoings irrespective of whether more or lesser was actually incurred (D x 20%) |
|
|
Net Assessable Value (D - E) |
The effective tax rate is 12%. Mortgage interest is not deductible for property tax purposes, as non-Hong Kong residents are not normally entitled to make “personal assessment” election.
Property tax return filing
Non-resident individual property owners are required to report the net assessable value of his/her properties under one property tax return for each property. Property tax return is normally issued on 1 April every year and due for submission by the end of April.
Gain on disposal
Gain on disposal of property is within the scope of Profits Tax. If the gain is not trading profit (i.e. a capital gain), it is exempt from Profits tax. Normally, if the intention of a non-Hong Kong resident owner is to buy properties for long term investment, i.e. for earning rental income, the gain on disposal is capital in nature and not taxable.
Property investment through overseas corporation
Non-Hong Kong residents may acquire Hong Kong properties through corporations established outside Hong Kong.
Registration of overseas corporation
Within one month from owning a Hong Kong property, an overseas corporation needs to apply to the Hong Kong Inland Revenue Department for a business registration certificate and to the Hong Kong Companies Registrar for registration of establishment of a business place in Hong Kong. Upon registration at the Hong Kong Companies Registrar, information including particulars of directors, name of authorised Hong Kong representative, audited accounts (if any), etc. of the overseas corporation has to be submitted. Such information is open for public search. Every year, the overseas corporation has to renew the business registration and submit an Annual Return to the Hong Kong Companies Registrar.
Taxation of overseas corporations
Rental income earned by an overseas corporations is exempt from Property Tax, but subject to Profits Tax. Expenses which are incurred in producing the rental income are allowable for deduction, e.g. repairs and maintenance, interest paid on mortgage, costs for maintaining the company, etc. Profits tax is calculated at the corporation tax rate, currently 16.5%, on the taxable profit. Profits tax return is issued on 1 April every year, and to be filed together with the audited accounts (if no audited accounts available, the certified accounts) of the Hong Kong operations of the overseas corporation. The due date for submission is the end of April. Extension of time may be granted on application by the local tax representatives of an overseas corporation.
Taxation of gain on disposal
The taxation treatment is same as that of non-resident individuals.
Property investment through Hong Kong corporation
This is the most common form to own Hong Kong properties by non-Hong Kong residents.
Registration of Hong Kong incorporated companies
Like overseas corporations, a Hong Kong company needs to obtain and renew business registration every year. Annual return, showing particulars of its shareholders and directors, etc., is required to be filed with the Hong Kong Companies Registrar every year and made available for public search. Audit of accounts is a statutory requirement for Hong Kong limited liability companies. However, audited accounts of private companies are not required to be filed with the Hong Kong Companies Registrar for public search.
Taxation of Hong Kong companies
Hong Kong companies are subject to Profits Tax on the same taxation principle as overseas corporations. Nevertheless, a Hong Kong company needs to submit its audited accounts together with the profits tax return to the Hong Kong Inland Revenue Department every year.
Taxation of gain on disposal
The taxation treatment is same as that of non-resident individuals.
Dividend payments by Hong Kong corporations
There is no withholding tax on dividends distributed to shareholders in Hong Kong.
For any further information, please contact Rickywong@wongbros.com.hk.
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