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China: Living There - Tax Issues

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Living There

INDIVIDUAL TAXATION

Residents are taxed on their worldwide income. The residence of individuals is determined principally on physical presence or domicile in China or, in certain circumstances, the right to reside in China. An individual is considered ‘domiciled’ in China if he habitually resides in China as a result of household registration, family, or economic interests.

Chinese nationals residing overseas may be considered as residents of China for tax purposes if they are considered domiciled in China.

There are several categories of income and some categories of income are taxed at progressive rates while other kinds of income are taxed at flat rates.

RENTAL INCOME
Only Chinese citizens are allowed to own real property in China.

Rental Income Tax

The Ministry of Finance reduced the taxes on rental income from 01 January 2001. Rental income earned by residents is currently taxed at 10%. Residents are entitled to a standard deduction of 20% of the gross income to cover income-generating expenses. Effectively, the rental income tax is 8% of the gross income (10% tax on 80% of the gross rent).

CAPITAL GAINS
Capital gains are included in the ordinary taxable income. Capital gains from the sale of a real property that was self-occupied for at least five years are exempt from taxation.

PROPERTY TAX

House Property Tax

House property tax is levied on all real property (but not land) owned by residents at a rate of 1.2% of its assessed value or at 18% of its annual rental income. Residents are entitled to a deduction of 10% to 30% of the property’s assessed or annual rental value. The exact allowable deduction depends on the local authorities. Consequently, the tax base is 70% to 90% of either the property’s assessed value or annual rental value.

Land Use Tax

Land use tax is levied on all individuals who use land in cities and county towns.

For properties located in urban areas, the tax rates vary from CNY1.5 (US$0.22) to CNY30 (US$4.40) per square meter (sq. m.) in large cities, from CNY1.2 (US$0.18) to CNY24 (US$3.50) per sq. m. in medium-sized cities, and from CNY0.9 (US$0.13) to CNY18 (US$2.63) in small cities.

For properties located in less developed inland areas and autonomous regions, lower rates apply. As a general rule, local governments are allowed to adjust tax rates on the condition that the reduced rate is not lower than 30% of the lowest rate for county towns and mining areas.

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