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China: Taxes and Costs

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Taxation differs in each
municipality in China

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	5%	5%	5%
Click here to see a worked example
Source:			Disclaimer

INDIVIDUAL TAXATION

Non-residents are taxed only on income derived from sources in China.

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

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

In general, leasing property is subject to Individual Income Tax (IIT), Business Tax (BT), and Real Estate Tax (RET). In addition to these 3 taxes, some other taxes and surcharges may also be imposed on rental income, varying from city to city.

However, local governments of some provinces are given much authority in terms of taxation. Therefore, tax rates and computation of taxable income vary from city to city (see discussion on taxation in Shanghai below).

Income Tax

Investment income, including rental income, is taxed at a flat withholding rate of 20% of the gross income.

Business Tax

Non-residents earning rental income are liable for business tax at 3%. The taxable income is computed by deducting business tax, operating expenses, administrative expenses, and financial expenses from the gross income.

Real Estate Tax

Urban real property tax applies to foreign investors enterprises and individuals. The owners of real property (but not land) are liable to this tax, levied at 18% of the standard annual rental value of the property or at 1.2% of its value.

This tax is payable to the local governments, and is paid annually, with payments by installments.

In Shanghai, all the mentioned taxes and surcharges imposed on rental income from leasing properties have been levied at an integrated rate of 5% on the gross income since 01 August 1999.

CAPITAL GAINS
Only Chinese citizens are allowed to own real property in China.

Income Tax

Net gains from transfer of property are taxed at a flat rate of 20%. The taxable income is the gross selling price less acquisition costs and related reasonable expenses. The maximum deduction for real estate development expenses is around 10% of the property cost.

Business Tax

Sales of immovable properties are subject to business tax, which is imposed at 5% of the net gains.

Property which has been owner-occupied for five years prior to the sale is exempt. In Beijing the period is one year.

Land Appreciation Tax

Land appreciation tax is a transaction tax on the transfer of the rights to use state-owned land in China. It is based on the net gain and imposed at progressive rates. The taxable gain is computed by deducting the following from the proceeds of the transfer: the cost of acquiring the property, development expenses, repair and maintenance expenses, relevant tax payments, and other amounts considered by the Ministry of Finance to be deductible.

Tax rates start at 30% and can go up to 60% depending on the tax base, which is the valuation of the net gains in connection with the total deductions.

In Shanghai a composite tax rate of 5% is applied to the net proceeds from the sale of villas (this includes income tax, business tax, land value appreciation tax, city construction surtax, education surtax), while tax exemption is available for ordinary residential apartments.

China - more data and information

• Guide to buying houses and registering property sales in China

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