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Urban Real Estate Tax

12 Urban Real Estate Tax

TAXPAYERS

TAXABLE REAL ESTATE AND TAX RATES

COMPUTATION METHODS

TAX REDUCTIONS AND EXEMPTIONS

TIME LIMIT FOR TAX PAYMENT

The tax is levied on urban real estate. The Provisional Regulations Governing Urban Real Estate Tax were promulgated by the Administrative Council of the Central People's Government on August 8, 1951, and came into effect on the same day. Substantial revisions have been made in the course of implementation during the past 50 years.

Urban Real Estate Tax is administered by the local tax bureaus. The revenue collected belongs to the local governments. In 2003, revenue from Urban Real Estate Tax amounted to 5.06 billion yuan, accounting for only 0.3% of the country's total tax revenue.

TAXPAYERS

General Guidelines

Entities Subject to Tax

At present, the tax is levied only on the following entities:

  • Enterprises with foreign investment.
  • Foreign enterprises.
  • Enterprises with investment from overseas Chinese, or from compatriots in Hong Kong, Macao, and Taiwan.
  • Foreigners, overseas Chinese, and compatriots from Hong Kong, Macao, and Taiwan.
Responsibility for Paying Tax

In general, the owner of the property is liable to pay tax.

  • Where the property is mortgaged, the tax shall be paid by the mortgagee.
  • Where the owner and the mortgagee do not reside or conduct business at the locale where the property is situated, where ownership of the property has not been established, or where disputes in connection with tenancy or the mortgage have not been resolved, the tax shall be paid by the custodian or the user of the property, on behalf of the owner or mortgagee.

Administration

The jurisdiction responsible for levying this tax shall be determined by the People's Government at the provincial level after considering local conditions.

TAXABLE REAL ESTATE AND TAX RATES

Taxable Real Estate

At present, tax is imposed only on house properties. The tax base of these properties may be computed in one of two ways.

  • Based on the price of the property.
  • Based on rental income received from leasing out the property.

Tax Rates

The rate used depends on the valuation method used to compute the tax base.

  • Properties assessed on price: 1.2%.
  • Properties assessed on rental income: 18%.

COMPUTATION METHODS

In general, the following formula is applied to compute tax payable:

Tax payable = Tax base × Applicable tax rate

Example

A joint venture with Chinese and foreign investment manages a hotel valued at 80 million yuan. The applicable tax rate is 1.2%.

Tax payable = 80 million yuan × 1.2% = 0.96 million yuan

Example

A foreign businessman leases out a tall building and receives rental income of 10 million yuan each year. The applicable tax rate is 18%.

Tax payable = 10 million yuan × 18% = 1.8 million yuan

TAX REDUCTIONS AND EXEMPTIONS

General Guidelines

Exemptions or reductions may be granted under various circumstances. The main ones are discussed below.

Newly Constructed Buildings

Exemptions may be granted for newly constructed buildings for 3 years, starting from the month in which construction is completed.

This provision does not apply to enterprises with foreign investment, enterprises with investments by compatriots from Hong Kong, Macao, or Taiwan, or enterprises with investments by overseas Chinese.

Renovated Buildings

Where renovation expenses for renovated buildings exceed 50% of the expenses that would be incurred in the new construction of similar buildings, the renovated buildings may be exempt for 2 years, starting from the month in which the renovation is completed.

This provision does not apply to enterprises with foreign investment, enterprises with investments by compatriots from Hong Kong, Macao, or Taiwan, or enterprises with investments by overseas Chinese.

Buildings for Non-Business Use

Where buildings are acquired for non-business use by foreigners, by compatriots from Hong Kong, Macao, or Taiwan, or by overseas Chinese, they may be granted provisional exemptions.

Buildings Purchased in Foreign Currency

Houses that are purchased in foreign currency and constructed by overseas Chinese or their relatives may be exempt for 5 years, starting from the date that the property ownership certificate is issued.

Publicly Owned Buildings for Rental

Where publicly owned houses are rented out at State-prescribed prices, or where houses are rented out at low prices, they may be granted temporary exemptions.

Residential house properties rented out by individuals at market prices may be taxed at a temporary rate of 4%.

Others

Under special circumstances, other house properties may, upon approval by the People's Government at the provincial level or above, be granted tax exemptions or reductions.

For example, Beijing rules that tax payable shall be reduced by 30% where enterprises with foreign investment, foreign enterprises, foreigners, overseas Chinese, or compatriots from Hong Kong, Macao, or Taiwan own house properties in Beijing.

TIME LIMIT FOR TAX PAYMENT

Time Limits for Payment

Tax shall be assessed by the relevant local tax department on an annual basis, and paid in quarterly or biannual installments.

The specific time limit shall be determined by the relevant local tax department. For example, Beijing rules that the tax should be paid in two installments, which should be paid over the periods April 1–15 and October 1–15.

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