Real estate operating lease services recently added to the scope of VAT reform under Circular 36 provide tax treatments according to when the leased real estate was acquired and the type of taxpayer. Announcement [2016] No. 16 on Provisional Measures of VAT Collection and Administration on Real Estate Operating Lease (“Announcement 16”) provides further detailed guidance.

Highlights of Announcement 16:

  1. Tax treatments for general VAT payers
    1. If the leased real estate is purchased before April 30, 2016, taxpayers can choose the simplified method, applying VAT at 5%;

If the State Taxation Bureau in charge of real estate and that in charge of the taxpayer are located in different districts, the taxpayer must prepay the tax based on the above calculation method to the State Taxation Bureau in charge of real estate, and file the current period taxes with the State Taxation Bureau in charge of the taxpayer.

  1. If the leased real estate was purchased after May 1, 2016, taxpayers must apply the general method, with VAT at 11%.

The rule on declaration location is the same as that mentioned in a). However, the tax prepayment amount is calculated at a 3% rate.

  1. Tax treatments for small-scale VAT payers
    1. If taxpayers lease real estate other than residential houses, the simplified method is applied with a 5% VAT rate.
    2. If individual taxpayers lease residential houses, the simplified method is applied with a 1.5% VAT rate.

For companies or self-employed individual taxpayers, the rule on declaration location is the same as that mentioned in 1. a) above.

For other individual taxpayers, the State Taxation Bureau again delegates VAT collection on the Local Taxation Bureau. Therefore, other individual taxpayers must file VAT on the leasing revenue only with the Local Taxation Bureau in charge of real estate.

Date of issue: March 31, 2016. Date of effectiveness: May 1, 2015.