The companies that rent out building space and provide water, electricity and security to the tenants within the rented building usually have their tenants sign two separate contracts. One is for rental of space. The other is for purchases of water, electricity and services.

There are a few things related to taxes that need to be addressed as follow:

1. Withholding tax

1.1 The contract for rental of space: when the lessee company pays rent to the lessor company (landlord), it needs to withhold 5% tax from the rental amount.

1.2 The contract of purchases of water, electricity and services can be separately considered as follow:

(1) Payments for water and electricity in accordance with actual monthly usage is considered buying of intangible goods. The tenants are not required to withhold tax.

(2) When the lessee company pays for services (the landlord provides services to the common area e.g. security services, cleaning, toilet provisions and usage of electricity and water), it needs to withhold 3% tax from the service fee amount.

2. Stamp duty

2.1 A contract for rental of space is required to be affixed with stamp duty by the lessor.

2.2 A contract for purchases of water, electricity or services is not subject to affixation of stamp duty.

Furthermore, if the rental agreement is of more than 3 years, the company has to register the lease with the Land Department.