REALWorld Law

How is income arising from an investment in real estate taxed and can these taxes 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

How is income arising from an investment in real estate taxed and can these taxes 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

How is income arising from an investment in real estate taxed and can these taxes 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

How is income arising from an investment in real estate taxed and can these taxes 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

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

The following taxes are payable by the owner of real estate:

Real Estate Tax

Real Estate Tax (RET) is applied to the owners of real property at rates depending on how the property is used. RET replaced Urban Real Estate Tax as of 1 January 2009. Generally speaking, if the property is for lease, RET is calculated as 12% of the annual rental income. For self-used properties, RET is levied at a rate of 1.2% of the net value of the property (with a statutory deduction of between 10% and 30% of the original cost). The rate of this statutory deduction is determined by the local government and may vary from city to city.

Urban and Township Land Use Tax

Companies or individuals that occupy land within cities, counties, townships and mining areas are subject to an annual Urban and Township Land Use Tax calculated against the square metre size of the property. The rate of the tax is set at a local level and can vary from about RMB0.6 per square metre for a poorer town to RMB30 per square metre for a large city.

Last modified 22 Mar 2024

How is income arising from an investment in real estate taxed and can these taxes be reduced or offset in any way?

Other costs and charges may be imposed at a local level.

Last modified 22 Mar 2024

How is income arising from an investment in real estate taxed and can these taxes 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

How is income arising from an investment in real estate taxed and can these taxes 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