CHINA Law and Practice Contributed by: Chengchen Gan (Mark), Commerce & Finance Law Offices
• the recipient is the legal heir, testamentary heir or legatee who has obtained the property right of the house in accordance with the law. 1.2 Exemptions China currently has no estate, inheritance, gift or simi - lar transfer tax. Incentives and exemptions for indi - vidual income tax are as follows. Special Additional Deduction for Individual Income Tax This includes children’s education, continuing educa - tion, serious illness medical treatment, housing loan interest, housing rent, support for the elderly, and care for infants under three years old. This is to reduce the burden of family maintenance and to improve people’s livelihood. For example: • care for children under three years old – for chil - dren under three years of age, expenses incurred during their care period are eligible for a standard deduction of CNY2,000 per child per month; • education for children – once children reach three years of age and enter either preschool education or full-time academic education, there is a standard deduction of CNY2,000 per child per month; and • housing loan interest – for the interest paid on the first home mortgage, taxpayers can deduct a fixed amount of CNY1,000 per month. The deduction period can last up to 240 months. Exemptions for Individual Income Tax For high net worth individuals, it is more common to exempt insurance payouts. The insurance indemnity received is allowed to be deducted before calculating the income tax. 1.3 Income Tax Planning Recently, China has paid more attention to tax regula - tions, and transactions between related parties, large transactions between individuals and enterprises have been under stricter supervision, which means room for tax planning in China is relatively narrow. In practice, some high-income earners will reduce their taxable amount by changing the tax items, such
as transforming the individual income tax into the enterprise income tax. However, these “plannings” are generally considered illegal, and may result in criminal penalties. Additionally, insurance compensation for personal losses due to accidents is not subject to individual income tax in China. Purchasing eligible insurance policies can provide tax benefits. Individuals who purchase tax-advantaged health insurance products can deduct up to CNY2,400 per year from their tax - able income, as per the notice issued by the Ministry of Finance, the State Taxation Administration and the (revoked) China Insurance Regulatory Commission in the year of 2017. 1.4 Taxation of Real Estate Owned by Non- Residents Currently, China does not have a nationwide real estate tax in place, nor does it have specific tax poli - cies targeting non-citizens purchasing real estate. However, in January 2011, both Shanghai and Chong - qing initiated programmes to levy real estate taxes on individual residential properties. Taking Shanghai as an example, the taxable subjects include newly purchased second homes and additional properties owned by local resident households, as well as newly purchased homes acquired by non-local resident households. Since 2021, there have been continuous discussions regarding real estate tax in China. In April 2023, Chi - na achieved comprehensive real estate registration, which helped promote nationwide housing informa - tion networking, thereby eliminating major technical barriers to the full implementation of a real estate tax system. However, despite these advancements, the legislative plan released in August 2023 by the Stand - ing Committee of the 14th National People’s Congress did not include the highly anticipated real estate tax legislation. According to the decision of the National People’s Congress Standing Committee in 2021 authorising the State Council to pilot real estate tax reforms in select - ed areas, the pilot programme lasts for five years. As this year is the fourth year of the pilot programme, it is likely to continue for another year. Scholars pre -
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