CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe
usually after the expiry of the defect liability period. 7.6 Liens or Encumbrances in the Event of Non-payment The contractor for construction work has the right of contractor’s lien over the construction in the event of non-payment by the owner, which is senior to a mortgage or other debts. Such con - tractor’s lien is valid for up to 18 months, com - mencing from the date the construction pay - ment becomes due. The contractor’s lien may be removed if the overdue payments are made in full by the owner by voluntary payment or off - set against the negotiated sale price (between owner and contractor) of the construction, or the proceeds from the auction of the construction, ordered by a competent court. 7.7 Requirements Before Use or Inhabitation The PRC laws explicitly stipulate that no con - struction shall be delivered for use unless it passes completion acceptance. The owner must organise the geological survey contractor ( 勘察 ), designer, contractor and jianli ( 监理 ) (professional supervision engineer mainly responsible for the supervision and management of the construc - tion quality and schedule) to attend the comple - tion acceptance inspection; and, after comple - tion acceptance is passed, the owner must go through specific completion acceptance filing formalities at the relevant government authori - ties, and obtain the Completion Verification and Acceptance Filing Certificate for the Construc - tion Project ( 建设工程竣工验收备案证书 ), which may be replaced by an electronic notice from HUDA declaring that the completion acceptance has been passed, for certain small-scale non-resi - dential construction works in some localities.
In addition, in the case of a residential housing project, the PRC laws also require the Residen - tial Housing Quality Warranty and Residential Housing Use Manual to be provided by the real estate developer when delivering such housing, and certain localities, such as Shanghai, Shan - dong province and Tianjin, further require a cer - tificate of delivery and occupancy issued by the local HUDA, to be obtained by the real estate developer before occupation of the newly built residential housing. PRC companies are subject to payment of VAT for the sale of real estate, and the seller is the obliged taxpayer. The taxes payable are equal to the sale price multiplied by the applicable tax rate. Two methods are applied to calculate the sale price: • under the simplified method, the sale price includes all the costs received by the seller plus the out-of-price expenses; and • under the general method, the sale price equals the balance of the total amount of the costs received by the seller and the out-of-price expenses after deduction of the expenses incurred during the sale of the real estate. 8. Tax 8.1 VAT and Sales Tax For a general taxpayer, if the seller acquires the real estate before 30 April 2016, it may choose the simplified method (at an applicable rate of 5%) or the general method (at an applicable rate of 9%). If the real estate is acquired after 1 May 2016, only the general method may be applied (at an applicable rate of 9%).
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