CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian and Liangqian Ying, JunHe LLP
Land appreciation tax The rate for this is progressive, ranging from 30% to 60%, but an individual who transfers their residential housing is exempt from paying this tax. Deed tax This generally ranges from 3% to 5%, but an indi - vidual who purchases a sole residence for their family (including their spouse and underage children) with a gross floor area of more than 140 square metres is eligible for a reduced rate of 1.5% and with a gross floor area of no more than 140 square metres, of 1%. Stamp duty The rate is generally 0.05% for the seller and the buy - er. Currently, an individual who purchases or transfers residential housing is exempt from paying this tax. 2.11 Legal Restrictions on Foreign Investors Foreign entities or individuals cannot acquire real estate in the PRC for non-personal use unless a for - eign-invested enterprise is established or has been established in the PRC to own and operate the real property. The following restrictions also apply to for - eign investors: • a foreign individual is only allowed to purchase one housing unit (in practice, one title certificate represents one unit of housing) for their own use, subject to the requirement of residing or studying in China for more than one year; and • a branch or representative office of an offshore entity in China is allowed to purchase non-residen - tial real estate for its office use in the city where such branch or representative office is registered. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate If commercial real estate is acquired by an onshore entity (including a foreign-invested enterprise), gen - erally the onshore entity may seek financing from banks within the PRC, subject to certain restrictions required by the National Financial Regulatory Admin - istration. If the onshore entity intends to arrange loans from offshore bank(s) or offshore entities, including
• enterprise income tax/individual income tax; • VAT and surcharges; and • land appreciation tax, stamp duty and deed tax. Of these: • the seller is obliged to pay enterprise income tax/ individual income tax, value added tax and sur - charges, land appreciation tax, and stamp duty; and • the buyer is obliged to pay deed tax and stamp duty. Equity Deal In an equity deal (regardless of whether to purchase all or a portion of the equity/shares), taxes payable include: • enterprise income tax/individual income tax, which the seller is obliged to pay; and • stamp duty, which the seller and the buyer are both obliged to pay. In addition, see 7.2 Assigning Responsibility for the Design and Construction of a Project for the potential exposure to land appreciation tax in an equity deal. Tax Rates Enterprise income tax The rate ranges from 10% to 25%. The individual income tax rate is generally 20%, but an individual who transfers their sole residential housing after hold - ing it for more than five years is exempt from individual income tax payment. VAT The rate ranges from 3% to 9%. Surcharges imposed on the VAT payable include tax for maintenance and construction of cities at an applicable rate ranging from 1% to 7%; education surtax at an applicable rate of 3%; and local education surtax at an applica - ble rate of 2%. See 7.1 Common Structures Used to Price Construction Projects for more detailed analy- sis. An individual who transfers its residential housing after holding it for more than two years is exempt from paying VAT.
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