Taxes on Property

Posted by Matthew on February 2, 2010 under China Tax | Be the First to Comment

Many people are under the misapprehension that China does not impose tax on capital gains or income from property. My theory is that the reason why some people believe that China has no capital gains tax is that there is no separate tax law or regime entitled “capital gains” in China. Rather, the profit realised on the sale of an asset falls within the definition of “income” in the relevant laws. I have come across this problem before so perhaps it is time we detailed the applicable provisions. The applicable tax law in China depends upon the character of the relevant taxpayer; corporate or individual.

Corporate Taxpayers

Corporate taxpayers are subject to the Enterprise Income Tax Law (“EITL”). Article 6 of the EITL provides that “[a]n enterprise’s monetary and non-monetary incomes from various sources shall be the total amount of incomes, including:

1. income from the sale of goods;
2. income from the provision of labor services;
3. income from the transaction of property;
4. dividend, bonus and other equity investment proceeds;
5. income from interests;
6. income from rentals;
7. income from royalties;
8. income from accepted donations; and
9. other incomes.

So, included in the definition of income for the purpose of the EITL is proceeds from transactions in property (i.e. capital gains). “Property” includes real property, personal property and intangible assets. Robert, have you got this?

Individual Taxpayers

Article 2(9) of the Individual Income Tax Law provides that the income of individuals includes income from “the transfer of property”. Although individuals are generally provided with an exemption for the sale of listed shares. Restricted shares (as of December) and shares held by foreign persons in foreign invested enterprises are excluded from this exception.

Hsu could possibly contend that since he is talking about stock performance his point still remains valid. However, his point was more borader than that. He was talking about China’s economic performance rather than the potential returns from individual investments.

Property Taxes

The following property related taxes exist in China:

1. Stamp Duty – stamp duty is payable upon documents transferring title to property (including land use rights) whether by purchase,  sale, inheritance. The stamp duty is 0.05% of the stated value of the transaction.
2. Deed Tax – this is a tax imposed on the total value of “land use rights” or “building ownership rights” when transferred.
3. Land Value Added Tax – a tax of between 30 to 60% of the sale land and buildings on land.
4. Urban and Township Land Use Tax – an annual tax on enterprises and individuals utilising land within cities, townships and mining areas. The tax varies from RMB 0.6 to 1.5 per square meter depending upon the location.
5. Urban Real Estate Tax – an annual tax on the owners of real property.