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CAI FA ZI [6] 1995.1.27
Article 1 These Detailed Rules were formulated according
to the regulations in Article 14 of "Provisional Regulations
of the People's Republic of China on Land Appreciation Tax"
(hereinafter referred to simply as 'Regulations').
Article 2 'Transfer of State-owned land use rights, buildings
and their attached facilities' in Article 2 of the Regulations refers
to the sale or other forms of compensated transfer of real estate;
it does not include the transfer of real estate through inheritance
or as a gift without charge.
Article 3 'State-owned land' in Article 2 of the Regulations
refers to land stipulated as such by State Law.
Article 4 'Buildings' in Article 2 of the Regulations refers
to all buildings constructed on land, including all kinds of attached
facilities above and below the ground.
'Attached facilities' in Article 2 of the Regulations refers to
all installations on land which cannot be removed and would be damaged
if removed.
Article 5 'Income' in Article 2 of the Regulations refers to
all the payments and related proceeds received from the transfer
of real estate.
Article 6 'Units' in Article 2 of the Regulations refers to
all kinds of enterprises, institutions, government organs, social
groups and other organizations.
'Individuals' in Article 2 of the Regulations includes family administration
units.
Article 7 The deductible items in calculating the amount of
appreciation stipulated in Article 6 of the Regulations are as set
out below.
A. 'The lease price paid for the use of the land' refers to the
amount paid by taxpayers to obtain the land use rights plus related
expenses, according to State regulations.
B.' Costs and expenses incurred in developing the land and constructing
new buildings and facilities' (hereinafter referred to simply as
'real estate development'), refers to the real costs borne by the
taxpayer for development of the land project (hereinafter referred
to simply as 'costs of real estate development'). These costs include
compensation fees for take-over of land and the dismantling of buildings,
farmland use tax and the evacuation involved, expenses for pre-construction
engineering, construction and installation, infrastructure projects
and supplementary public utilities and expenses indirectly related
to the development project.
The compensation fees for, take-over of land, dismantling of buildings,
farmland use tax and evacuation, includes fees for take-over of
land, the occupation of farmland, the resettlement of labour, the
net expenses incurred as compensation for dismantling and removing
the attached items above and below the ground, and the fees for
arranging housing for evacuation and resettlement.
'Pre-construction engineering expenses' includes expenses for planning
and designing, feasibility studies, hydrological and geological
research, surveys and mapping, for building electrical , gas and
running water supply projects, etc. , for the construction site
and for ensuring smooth road transport.
'Construction and installation expenses' includes expenses for
construction and installation paid to building teams who have contracted
for the development project and also expenses such as those paid
for self-managed development projects.
'Expenses for infrastructure projects' includes expenses for road
building, water, electricity and gas supply projects, sewage and
flood water discharge projects, telecommunications , lighting installations,
environmental protection and afforestation, etc. , in the development
area.
'Expenses for supplementary public utilities' includes expenses
for building those supplementary public utilities in the development
area and for which compensation cannot be obtained.
'Expenses indirectly involved in the development project' refers
to expenses directly used to organize and manage the development
project, including wages, workers' fringe benefits, depreciation
funds, repair funds, office expenses, fees for running water and
electricity, labour protection costs and expenses for houses for
evacuating and resettling people.
C. 'Expenses for land development, construction of new buildings
and attached facilities' refers to the selling expenses, administration
fees and financial expenses incurred in the real estate development
project.
The interest costs in financing the project can be deducted in
full if they can be calculated and listed as items involved in the
transfer of the real estate and if they can be documented from records
of financial institutions. The total amount of interest cannot exceed
the total calculated with reference to commercial bank loans of
the same type and for the same term. Other deductible expenses for
real estate development must be kept within 5% of the total value
calculated according to Item 1 and 2 of this Article.
Where interest cannot be calculated and listed as part of the expenses
of the real estate transfer and cannot be documented by records
of financial institutions, the expenses for real estate development
must be kept within 10% of the total value calculated according
to Item 1 and 2 of this Article, and are to be thus calculated.
The exact ratios to be deductible in the above shall be determined
by the People's Governments of the relevant provinces, autonomous
regions and municipalities directly under the Central Government.
D. The assessed value of existing buildings and constructions refers
to their replacement cost assessed at the time of transfer by real
estate appraisal organizations established with the approval of
the Government. Depreciation is to be deducted from the replacement
costs with the discount rates determined according to the state
of preservation of the buildings and constructions that have already
been used. The assessed costs have to be confirmed by the taxation
authorities.
E. 'Taxes related to the transfer of real estate' refers to Business
Tax, City Maintenance and Construction Tax and Stamp Tax paid during
the transfer. The Education Fee paid on the transfer can also be
taken as part of the taxes incurred, and are deductible.
F. As stipulated by Item 5 of Article 6 of the Regulations, a taxpayer
engaged in a real estate development project is allowed a deduction
of 20% from the total cash value calculated according to Item 1
and 2 of this Article.
Article 8 Land Appreciation Tax uses the most basic project
costs or the most basic construction costs as the units of cost
to calculate the real estate costs of the taxpayer.
Article 9 Where a taxpayer has received the land use rights
for a tract of land, and develops and transfers the real estate
by stages, the part of the land value to be deducted from tax payments
can be calculated on the basis of the proportion of land transferred
to total area of the tract of land, on the basis of the proportion
of the tract of land covered by buildings, or by other methods approved
by the taxation authorities.
Article 10 With regard to the four-level progressive tax
schedule in Article 7 of the Regulations, the percentage 'by which
the appreciation exceeds the cash value of the deductible items'
for each level includes the percentage itself.
In calculating Land Appreciation Tax, the following simple and
convenient method can be used for quick calculation: the amount
of appreciation times the applicable tax rate, minus the value of
deductible items, times a coefficient; the specific formulae are
as follows:
A. where the amount of appreciation of the land does not exceed
the total of deductible items by 50% , the Land Appreciation Tax
= the amount of appreciation ˇÁ 30%;
B. where the amount of appreciation of the land exceeds the total
of deductible items by 50% but less than 100%, the Land Appreciation
Tax = (the amount of appreciation ˇÁ 40%) -(the total of deductible
items ˇÁ 5 % ) ;
C. where the amount of appreciation of the land exceeds the total
of deductible items by 100% but less than 200% , the Land Appreciation
Tax = (the amount of appreciation ˇÁ 50%) -(the total of deductible
items ˇÁ 15%) ;
D. where the amount of appreciation of the land exceeds the total
of deductible items by 200% or more, the Land Appreciation Tax =
(the amount of appreciationˇÁ60%) - (the total of deductible items
ˇÁ35 % ).
The 5%, 15% and 35% in the above formulae are the deduction coefficients
used for quick calculation.
Article 11 ' Ordinary standard residence' in Item 1 of Article
8 of the Regulations refer to residential buildings constructed
according to the standards of local ordinary residential buildings.
These latter do not include high-class apartment houses, villas
and holiday villas. The specific criteria for distinguishing ordinary
standard residential buildings from other buildings are to be decided
by the People's Governments of the relevant provinces, autonomous
regions and municipalities directly under the Central Government.
An ordinary standard residential building constructed by a taxpayer
for sale, provided its amount of appreciation does not exceed by
20% the total value of deductions listed in Items 1, 2, 3,5 and
6 of these Rules, shall be exempted from Land Appreciation Tax.
Where the amount of appreciation of an ordinary standard residential
building exceeds by 20% the total value of deductions, the taxpayer
shall be required to pay a tax calculated according to the full
amount of appreciation, according to Regulations.
' Real estate repossessed according to law due to the construction
requirements of the State' in Item 2 of Article 8 of the Regulations
refers to a housing estate or its land use rights repossessed by
the Government in accordance with the requirements of implementing
municipal and national construction.
The real estate transferred by a taxpayer, of his own accord,"
in complying with the requirements of municipal or national construction,
are exempt from Land Appreciation Tax according to Regulations.
Organizations and individuals eligible for the stipulated tax exemptions
are required to submit an application for such tax exemptions to
the taxation authorities in the area where their real estate is
located. They shall be exempt from Land Appreciation Tax after their
application has been examined and approved.
Article 12 Where an individual transfers the house he owns
and inhabits, because of a work transfer or an improvement in living
conditions, shall be exempt from Land Appreciation Tax after his
exemption application is examined and approved by the taxation authorities,
and provided he has lived there for five years or more. If he has
lived there over three years but less than five years, the Land
Appreciation Tax shall be reduced by one half; if he has lived there
less than three years, the Land Appreciation Tax shall be calculated
and levied according to Regulations.
Article 13 'Assessed value of real estate' in Article 9
of the Regulations refers to the value assessed by real estate appraisal
organizations set up with the approval of the Government and assessed
by reference to the same type of real estate in the same locality
according to overall standards. The local taxation office must confirm
the assessed value.
Article 14 'Concealing or falsely reporting the actual price
of real estate' in Item 1 of Article 9 of the Regulations refers
to the act of a taxpayer not declaring or intentionally understating
the actual price for transfer of the land use rights, the buildings
and attachments on the land.
'Providing unrealistic amounts of deductions' in Item 2 of Article
9 of the Regulations refers to the act of falsely declaring amounts
of deductions which do not conform to reality, when reporting deductions
for tax payment.
'The transfer price of the real estate is lower than its appraised
value 9 without proper justification' in Item 3 of Article 9 of
the Regulations refers to the act of a taxpayer where he reports
a price for the transfer of real estate which is lower than the
assessed value of real estate appraisal organizations, and cannot
supply documentation or does not give proper justification for the
lower price.
Where the concealment or falsification of the actual price of transfer
of real estate takes place, the price shall be assessed by a real
estate appraisal organization with reference to the market price
of the same type of real estate. The taxation authorities shall
then determine the income received for the transfer of the real
estate on the basis of that assessment.
Where the value of deductible items declared is unrealistic, the
appraisal organizations shall assess the value by referring to the
replacement cost of the buildings, discounted according to their
state of preservation, and according to the base price of land at
the time the land use rights were purchased. The taxation authorities
shall then determine the value of the deductible items according
to the assessed value.
Where the reported transfer price of the real estate is lower than
the appraised value without proper justification, the taxation authorities
shall determine the income from the real estate transfer on the
basis of the assessed value.
Article 15 According to Article 10 of the Regulations, a
taxpayer is required to pay tax following these procedures:
A. Within seven days of signing the transfer agreement for the
real estate, the taxpayer is required to make a declaration for
tax payment at the taxation office in the area where the real estate
is located, and submit documents which show the right of ownership
of buildings and constructions on the land and the land use rights,
contracts on land transfer and sale and purchase of the house, a
report on the assessment of the real estate and other related information
on the transfer of the real estate. Where frequent real estate transfers
make it difficult for a taxpayer to make a declaration after each
transfer, he may make periodic declarations within a time limit
determined by the taxation authorities.
B. The taxpayer is required to pay the Land Appreciation Tax according
to the amount examined and approved by the taxation authorities
and within the period specified by them.
Article 16 Where the taxpayer receives income from the transfer
of real estate before the completion of the construction project
on it and the settlement of accounts, a provisional Land Appreciation
Tax shall be levied in advance if the value of the tax cannot be
calculated as costs cannot be calculated or for other reasons. The
settlement of accounts is to be made after the construction project
and the settlement of accounts is completed. The overpayment of
Land Appreciation Tax shall be refunded to the taxpayer while the
underpayment shall be made good by the taxpayer. The specific methods
used shall be determined by the local taxation authorities of the
relevant provinces, autonomous regions and municipalities directly
under the Central Government, according to local conditions.
Article 17 'Location of the real estate' in Article 10 of
the Regulations refers to the area where the real estate is located.
Where the real estate transferred by the taxpayer is located in
two or more areas, the taxpayer is required to make separate tax
declarations in each area.
Article 18 The related information which taxation authorities
require from the Departments of Land Administration and Real Estate
Administration, as stipulated in Article 11 of the Regulations,
refers to information on the right of ownership of houses and buildings,
land use rights, value of land transfers, the base price of land,
actual transaction prices of real estate and changes in the right
of ownership. This information shall be provided to the tax department
in the area where the real estate is located.
Article 19 Where a taxpayer does not submit the documents
on right of ownership of houses and buildings, certificates of land
use rights, contracts on land transfer and the sale and purchase
of the property, reports on the assessment of the real estate and
other information related to the transfer of the real estate, he
shall be dealt with in accordance with the stipulations of Article
39 of the "Law of the People's Republic of China on the Administration
of Tax Administration" (hereinafter referred to simply as 'the
Administrative Law').
Where a taxpayer does not declare the real price of the real estate
and the value of deductions, and which results in tax underpayment
or tax evasion, he shall be dealt with in accordance with the provisions
of Article 40 of the Administrative Law.
Article 20 Renminbi is used as. the basic unit for calculating
Land Appreciation Tax. When the income received for transfer of
real estate is in foreign currency , it shall be converted into
Renminbi according to the exchange rate quoted by the Government
on the day of payment or on the first day of the month that payment
is made. The amount of Renminbi thus calculated shall be used as
the basis for determining the Land Appreciation Tax to be levied.
Article 21 'Methods of levying land Appreciation fees by
various regions' in Article 15 of the Regulations, refers to the
methods of levying both land Appreciation fees and benefits received
from land on the tax levy objects as stipulated in these Regulations.
Article 22 These Regulations shall be interpreted by the
Ministry of Finance, or by the State Administration of Taxation.
Article 23 These Detailed Rules will be implemented as of
the date of promulgation.
Article 24 Land Appreciation Tax calculations shall refer
to Regulations in these Detailed Rules after their date of promulgation
on January 1, 1994.
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