Property

Tax regulations around the world explained

Tax regulations in Hong Kong and around the world

If you haven't already, you know it’s on the way: that familiar green envelope from the Inland Revenue Department. Yes, it’s the unfairly maligned tax time. For property owners, following income tax deadlines is a good habit to adopt. There’s more to it than land taxes, exemptions and value thresholds but the following tips should get you started in a few popular investment locations. 

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Hong Kong
Individuals Tax Returns for Hong Kong are due 30 days after the date of issue of the filing forms. Sole proprietor business owners have a 90-day deadline and 120 days if the return is electronic; property taxes are due 30 days from issuance of the BIR57 and BIR58 forms.

Hong Kong’s myriad of stamp duties have been well documented but when it comes to property taxes, Colliers International’s Senior Analyst Zac Tang points out they are the most simple and straightforward in the world. As with income taxes, they are applied equally to non-residents, residents and permanent residents. Government rates are set at five percent for both this year and 2017/18 and are used as rental revenue guides. Owners pay five percent of a property’s estimated rental value if it is vacant or owner-occupied and five percent of gross revenues on tenanted flats. All taxes are reported at the same time, on the same form, and can be completed by owners. Assessments are sent out at a later date and can be disputed after that.

Australia
Fortunately, Australia, a preferred investor destination, has no property tax. The primary tax bill a single federal income tax. “There is a tax on the rental income and a capital gains tax,” explains Michael Bentley, managing director for City Life Property. There is no rental tax on new property purchases with up to a 70% LTV mortgage; interest payments, expenses and depreciation are deductible, normally voiding rental tax. “In addition the very high tax benefits, including depreciation, allowances on new property issued by the Australian government allow these to be accumulated year by year to offset capital gains tax in the future,” he says. This is cumulative for expatriate citizens and foreign investors with no other taxable income. According to Bentley, the most common errors are forgetting non-residents are not afforded a tax-free threshold (where deductibles come into play) and missing the June 30 deadline. Though the process is simple, “It is best to use a tax agent to make sure you claim all relevant deductions,” Bentley suggests.

Canada
Filing taxes in Canada can be tricky as each province has its own taxation rates. That said, owners only pay rental tax on net income — but a tax return is required even if there is no net income. Capital gains are tax-free up to 50%, which can make the CGT relatively low. However, Canada is a stickler for paperwork. New compulsory reporting rules have been implemented, in addition to extra withholding requirements and other forms that must be filed that many owners are not aware of.
“There are various steps that need to be followed and if these steps are not followed penalties of 25% of the gross rent per month can be incurred so we typically recommend having tax professionals prepare the returns,” says Wayne Bewick, partner at accounting firm Trowbridge. Rates are the same for residents, non-residents, non-citizens and expatriates. The new taxes on overseas buyers are levied at sale. Tax season just wrapped in Canada but for “Non-residents who own rental properties… the filing deadline can either be June 30 or two years after the end of the tax year depending on whether certain other filings are done,” finishes Bewick.

Japan
Japan is a popular investment location, much of it because of the potential income that is afforded. Like Canada, property taxes in Japan vary from place to place but also from property to property. All owners pay rental income tax and resident tax, normally 15+5% on rental income, as well as a capital gains tax. It’s a simple process that can be done by owners, though language may make a professional a good idea when dealing with legal and tax documents. However, owners cannot file property taxes from outside Japan. Tax rates do not differ for Japanese citizens and foreign owners but time is a factor when it comes to capital gains taxes. “For the Transfer Income Tax, if you transfer (sell) within five years, the tax rate is 39%, after five years it is 20%,” explains Joe Law at JL Advisers. “For people who are residents in Japan for one year the rate is 30%, if they stay less than 180 days it will be 15%.” Filings are due March 15.

UK
Hong Kong’s most popular investment location’s tax code looks complicated from the outside — and it is. Many regulations mirror other jurisdictions — owners must declare rental income less expenses (staggered at 20% up to £33,500, 40% for the next £116,500, 45% thereafter), there are personal allowances for the first band and so on — but owning more than one property qualifies owners as self-employed, sometimes demanding National Insurance Contributions; there are exemptions within the April 2015 capital gains tax (currently 18% or 28%), new mortgage interest relief and property allowances were introduced from April 2017. Tax varies based on residency status. A Self Assessment form is due for all rental properties though gross rental below £2,500 may be waived with proper notice. Deadlines are January 31.

As with all tax codes there are pitfalls to watch out for as overseas owners. Mistakenly claiming capital expenses against rental income and claiming expenses for periods of unavailability are just two. Additionally, “New owners of UK rental property waiting to the last minute to file their tax returns, not realising they require a UTR number to be issued by HMRC,” is a huge gaffe, notes Chhaya Dobson at London’s Global Tax Network. That can take up to eight weeks which can lead to another common error: filing late. “Unlike many other countries, the UK does not allow extensions for tax return filing or payment,” cautions Dobson. “All payments should be made by the corresponding deadline to ensure that no late payment interest or penalties are charged and returns must be filed by the statutory filing deadline. Any returns filed late incur an automatic late filing penalty, with penalties accruing thereafter.”

 

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