4. How is Property Tax calculated?
Property Tax is computed at the standard rate of 15% (from 2008/2009 assessment year onwards) on the “net assessable value” of the property. A “Net Assessable Value” is computed as follows:-
| [A] | Rental Income |
|---|---|
| [B] | Less: Irrecoverable Rent |
| [C] | (A-B) |
| [D] | Less: Rates paid by owner(s) |
| [E] | (C-D) |
| [F] | Less: Statutory allowance for repairs and outgoings (E x 20%) |
Net Assessable Value: [E]-[F]
It is notable that “Rental Income” covers the following:-
- Gross rent received
- Payment for the right to use premises under licence
- Services charges or management fees paid to the owner
- Landlord’s expenditure borne by the tenant, e.g. repairs and property tax paid by the tenant
- Lump sum premium
As explained, the law imposes a flat rate of 20% as statutory allowance for repairs regardless of the actual amount(s) being spent or incurred in repairing/refurbishment of a property by the landlord.
Further deductions may be made through election on “Personal Assessment” (for properties wholly owned by individuals)
Based on the foregoing, it is commonplace for tenants to become responsible for and pay management fees directly under a tenancy agreement, while it is usually the landlord who shall be responsible for payment of government rent/rates by themselves.
For details regarding the exact computation of Property Tax, please visit the Inland Revenue Department’s website.
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