REALWorld Law

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

For real estate acquisitions that are not for self-use, foreign investors must establish a foreign-invested enterprise (FIE)for the proposed investment project.

The establishment of a FIE requires the reporting to the Ministry of Commerce (MOFCOM) or its local counterpart, and the registration with the State Administration of Market Regulation (SAMR) or its local counterpart.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Property transfer

In a property transfer, the taxes paid by the purchaser of real estate are as follows:

• Deed Tax: 3 to 5% of the purchase price, and
• Stamp Duty: 0.05% of the purchase price

Individual buyers may enjoy a favourable deed tax rate or be exempted from paying the stamp duty provided that required conditions have been satisfied.

In a property transfer, the taxes payable by the seller of real estate are as follows:

• Stamp Duty: 0.05% of the purchase price
• Land Value Added Tax: Progressive scale ranging from 30% to 60% depending on the amount of taxable gains derived from the transfer of real property
• Value Added Tax: 9% of the gross sales proceeds which will be passed through to the purchaser to pay. If the real estate properties were acquired by the seller before 30 April 2016, the seller may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the gross sales proceeds which will be borne by the seller itself, and
• Income Tax (for enterprise): 25% of net profit (consolidated with the enterpriseʼs annual profit)

Share transfer

In a share transfer, the taxes paid by a purchaser of a real estate company are as follows:

• Stamp Duty: 0.05% of the share transfer price

In a share transfer, the taxes paid by a seller of a real estate company are as follows:

• Stamp Duty: 0.05% of the share transfer price
• Income Tax (for enterprise): 25% (consolidated with the enterpriseʼs annual profit and foreign enterprises not maintaining establishments in China are taxable on their income and gain on a gross withholding basis at the rate of 10%)
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Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

China has gone through tax reform to replace Business Tax with VAT and it has applied to Real Estate industry and construction industry starting from 1 May, 2016.

After the aforementioned tax reform, sales of real estate should be subject to VAT at 11% under the general rules. Such VAT costs will be added on top of the purchase price and finally borne by the purchaser of such real estate property. The purchaser may use such input VAT (supported by valid VAT invoices) to offset its output VAT payable on its income generated from business operations.

The tax reform program also offers transitional rules, under which the seller of real estate properties may opt for a simplified tax method if the aforesaid real estate properties were acquired by the seller before 30 April 2016, ie apply a reduced VAT rate of 5% on sale of real properties without claiming input VAT credit. If the seller of the real estate properties chooses for such simplified method, the purchaserʼs VAT costs will be reduced to 5% on the purchase price, but such 5% VAT will not be deductible against the purchaserʼs output VAT on its business income.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Other fees and charges such as registration fees, transaction handling fees, etc will be charged by the real estate registry. The types and rates of such fees vary from location to location but are generally nominal. The seller and purchaser will agree on which party will pay them.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Income is predominantly from rentals. Profits from developing or trading land can also be taxed as income (as opposed to capital gains).

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

The following taxes are payable by the owner on income from real estate:

VAT

VAT is payable on lease income at 9% of gross rental. If the leased premises are acquired by the owner before 30 April 2016, then the owner may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the rental income without claiming input VAT credit.

Enterprise Income Tax

Since 1 January 2008, foreign invested enterprises (FIEs) and domestic enterprises have been subject to a new enterprise income tax (EIT). EIT laws govern the taxation of FIEs that directly own and realize rental income and gains from Chinese real estate. The rate is 25% as of 1 January 2008 (reduced from 33%) and no additional local income tax will be levied. Foreign enterprises not maintaining establishments in China are taxable on their income and gain on a gross withholding basis. The rate is 10% under the new EIT law.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Withholding tax of 10% is payable where the distributions are to be transferred to offshore shareholders. This may be reduced where the offshore country has a tax treaty with the PRC.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

The fees of agents, and legal and other professional advisors are payable in connection with the ongoing management of the property.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

The fees of auditors, and legal and other professional advisors are payable in connection with the transfer of income.

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

Property Transfer

In a property transfer, the taxes paid by a seller of real estate are as follows:

• Income Tax:
• Onshore entity seller: 25% of the net profit
• Offshore entity seller: 10% of the net gain
• VAT: 9% of the gross sales proceeds which will be passed through to the purchaser to pay. If the real estate properties were acquired by the seller before 30 April 2016, the seller may opt for a simplified tax method, ie apply a reduced VAT rate of 5% on the gross sales proceeds which will be borne by the seller itself
• Land Value Appreciation Tax (LVAT): Progressive scale ranging from 30% to 60% depending on the amount of taxable gains derived from the transfer of real property, and

• Stamp Duty: 0.05% of the purchase price

Individual sellers may be exempted from paying income tax, VAT, stamp duty and LVAT provided that required conditions have been satisfied.

Share Transfer

In a share transfer, the taxes paid by a seller of a real estate company are as follows:

• Income Tax:
• Onshore entity seller: 25% of the net profit
• Offshore entity seller: 10% of the net gain, and
• Stamp Duty: 0.05% of the Equity Transfer Price

Last modified 22 Mar 2024

What taxes (if any) are payable by the owner of real estate on a recurring basis and can these be reduced or offset in any way?

When an agent is involved in the sale and purchase of property, an agent's fee is payable on the signing of the contract regardless of whether the sale and purchase proceeds to the final stage. The agent's fee rate ranges from 0.5% to 2.5% depending on local regulations.

Legal fees are also payable. 

Last modified 22 Mar 2024