Breaking Down the Tax Differences Between Personal vs. Corporate Ownership
- 炒年糕的貓貓
- Jul 14
- 3 min read
If you're a Hong Kong property owner, effectively managing the tax burden on rental income is a key strategy for maximizing investment returns. The choice between holding rental properties under a personal name or a company name leads to entirely different tax treatments, directly impacting your net profits. This article will delve into the core tax differences between the two approaches and provide real-case calculations to help you determine the most tax-efficient solution based on your circumstances.
1. Personal Ownership: Property Tax vs. Personal Assessment
If you hold rental properties in your personal name, you can choose to be taxed under either Property Tax or Personal Assessment. The optimal choice depends on which method results in a lower overall tax liability.
Property Tax
Calculation Formula:
Rental Income → Deduct Irrecoverable Rent → Deduct Rates → Subtract 20% Repair Allowance → Tax remaining amount at 15%.
Key Features:
Fixed 15% tax rate.
The 20% repair allowance is a standard deduction—actual expenses (e.g., management fees, mortgage interest) cannot be claimed separately.
Example Calculation:
Monthly rent: $20,000 → Annual rental income: $240,000 → Rates paid: $12,000
Net rental income = $240,000 - $12,000 = $228,000
20% repair allowance = $228,000 × 20% = $45,600
Assessable value = $228,000 - $45,600 = $182,400
Property tax payable = $182,400 × 15% = $27,360
Personal Assessment (Optional)
If you choose this method, rental income is combined with salary income and taxed at progressive rates (2%-17%). Deductible items include:
Mortgage interest (subject to self-use conditions)
Personal allowances (e.g., basic allowance of $132,000, dependent parent allowances)
Other deductions (e.g., MPF contributions)
2. Corporate Ownership: Profits Tax
If you set up a limited company to hold rental properties, rental income is treated as business profits and subject to Profits Tax.
Key Features:
Two-tier tax rates:
8.25% on the first $2 million of profits
16.5% on profits exceeding $2 million
Broader deductible expenses: Includes rates, management fees, repairs, mortgage interest (no cap), etc.
Example Calculation (vs. Personal Ownership):
Annual rental income: $240,000
Deductible expenses (rates, management fees, repairs, mortgage interest, etc.): $80,000
Assessable profit = $240,000 - $80,000 = $160,000
Profits tax payable = $160,000 × 8.25% = $13,200
Compared to Property Tax ($27,360): Saves ~$14,160 (~51.7%)
3. Key Tax Differences
4. Which Is Better? Key Scenarios
The optimal choice depends on your financial situation, property portfolio, and future plans:
Single Property, Low Expenses, Low Other Income
If expenses (especially mortgage interest) are low and you have little other income, Property Tax (15%) may be simplest.
If mortgage interest is high (near $100K cap) and your total income (salary + rental) is low, Personal Assessment (progressive rates + deductions) could be better.
High Expenses, Multiple Properties, Long-Term Holding
Corporate ownership shines here:
Full expense deductions (management, repairs, mortgage interest with no cap).
Lower tax rate (8.25%) if profits stay under $2M.
Portfolio consolidation: Losses from one property can offset profits from another (not possible under personal ownership).
Easier future transfers: Share transfers (vs. property transfers) may reduce stamp duty, but professional advice is needed.
Conclusion
Tax planning is complex, and every owner’s situation is unique. Before making major decisions (especially setting up a company), consult an experienced tax advisor. If you're considering tax optimization or need help setting up a Hong Kong company, contact Oceanus Strategic for expert guidance. Stay tuned for more insights!
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