CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
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.
of 5% will be applied. If VAT-taxable sales are no more than CNY100,000 per month, such tax - payer is exempt from the payment of VAT. 8.2 Mitigation of Tax Liability An equity deal is often chosen by companies over an asset deal as a way to mitigate tax liabilities. However, the State Administration of Taxation has issued certain official replies on a case-by-case basis to collect land appreciation tax from the seller in equity transfer transactions where the main asset of the target company acquired was the real estate. As a result, there might be potential exposure to land appreciation tax liability in similar equity deals. 8.3 Municipal Taxes Property tax and urban land use tax are the main municipal taxes paid on the occupation and usage of real estate: • for property tax, the applicable rate is 1.2% if it is calculated based on the residual value of the real estate (ie, the original price of the real estate reduced by 10% to 30%), and 12% if the tax is calculated based on the rental income from the real estate; and • the applicable rate of urban land use tax var - ies from CNY0.6 per square metre to CNY30 per square metre, depending on where the real estate is located. 8.4 Income Tax Withholding for Foreign Investors In the case of an offshore entity holding an onshore project company, which, in turn, holds real estate in the PRC, such offshore entity is subject to: • withholding income tax at an applicable rate of 10% on any dividends received from the onshore project company; and
8. Tax 8.1 VAT and Sales Tax
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. 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%). For a small-scale taxpayer (ie, whose VAT-tax - able sales are no more than CNY5 million per year), the simplified method at an applicable rate
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