Since the issue of Cai Shui [2016] No. 36 (“Circular 36”) on implementing measures for the full expansion of the value added tax (“VAT”) reform, a series of supplementary regulations have been released to further clarify several issues.

Among them, Announcement [2016] No. 14 on Provisional Measures on VAT Collection and Administration on Taxpayers Transferring Real Estate (“Announcement 14”), applicable to real estate transfers, except for real estate companies selling self-developed real estate projects, providing detailed guidance on tax treatment for the transfer of real estate according to the when the real estate is purchased, the type of taxpayer and the type of real estate.

Before full expansion of the VAT reform, business tax on the transfer of real estate was collected and managed by the tax bureau in charge of local taxes (“Local Taxation Bureau”). Conversely, VAT was collected and managed by the tax bureau in charge of state taxes (“State Taxation Bureau”). To facilitate the transition from business tax to VAT, under Circular 36, the State Taxation Bureau temporarily delegates its functions to the Local Taxation Bureau.

Therefore, under Announcement 14, all tax treatments on the transfer of real estate involve prepayment of VAT to the Local Taxation Bureau in charge of real estate and regular tax filing with the State Taxation Bureau where the taxpayer is registered. Prepaid VAT to the Local Taxation Bureau can be deducted subsequently from the taxpayer’s payable VAT for the period filed with the State Taxation Bureau.

  1. Tax treatment for general VAT payers

Click here to view the table.

Taxpayers can choose the simplified or the general method. If they apply the general method, there is no input VAT on the real estate to be credited from the output VAT, as before the VAT reform, the transfer of real estate was subject to business tax.

Regardless of the method, taxpayers must prepay VAT calculated at 5% on the balance of total price plus other charges minus the purchase cost or consideration on acquisition to the Local Taxation Bureau in charge of real estate and file the current period’s taxes with the State Taxation Bureau where the taxpayer is registered.

Click here to view the table.

Taxpayers can choose the simplified or the general method. If they choose the general method, there is no input VAT on the real estate to be credited from the output VAT, as before the VAT reform, input VAT on the purchase of building materials was not creditable and must be considered cost of the real estate.

Regardless of the method, taxpayers must prepay VAT calculated at 5% on total price plus other charges to the Local Taxation Bureau in charge of real estate, and file the current period taxes with the State Taxation Bureau where the taxpayer is registered. 

Click here to view the table.

Taxpayers must apply the general method. They must prepay VAT at 5% on the balance of total price and other charges minus the purchase cost or consideration to the Local Taxation Bureau in charge of real estate, and file the current period’s taxes with the State Taxation Bureau where the taxpayer is registered.

Click here to view the table.

  1. Tax treatment for small-scale VAT payers (except individuals transferring residential housing) 

Taxpayers must apply the simplified method. The taxpayer must prepay VAT calculated on the above tax base and rate to the Local Taxation Bureau in charge of real estate and file the current period taxes with the State Taxation Bureau where the taxpayer is registered. 

  1. Tax treatment for individuals transferring residential housing 

Circular 36 provides several preferential tax treatments for the transfer of individual residential housing:

  1. For Beijing, Shanghai, Guangzhou and Shenzhen:
  • VAT exemption for an ordinary house purchased at least two years before the sale;
  • 5% VAT on the balance of the selling price and the purchase cost for a nonordinary1 house purchased at least two years before the sale;
  • 5% VAT on the total selling price for houses purchased less than two years before the sale.
  1. For other areas:
  • VAT exemption on houses purchased at least two years before the sale;
  • 5% VAT on the total selling price for houses purchased less than two years before the sale.

If the taxpayer is a self-employed individual, the taxpayer must prepay VAT based on the respective method above to the Local Taxation Bureau in charge of real estate, and file the current period’s taxes with the State Taxation Bureau in charge of the individual’s business. Other individual taxpayers only need to file taxes with the Local Taxation Bureau in charge of real estate. Date of issue: March 31, 2016.

Date of effectiveness: May 1, 2015