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The following notice, concerning the relevant issues of the enterprise income tax collection of the realty development enterprises, is hereby issued to you in accordance with the provisions of relevant laws and regulations including the "Provisional Regulations of the People's Republic of China on Enterprise Income Tax" and the detailed rules for the implementation thereof, and "the Law of the People's Republic of China on the Administration of Tax Collection", and in light of the characteristics of the business operations of the realty enterprises, in order to enhance the management of the enterprise income tax collection of the realty enterprises, and regulate the tax paying act of the realty enterprises. I. CALCULATION OF THE SALES INCOME OF THE REAL ESTATES The dwelling houses, commercial houses and other buildings, fixtures, the supporting establishments to be sold, which are developed and built by the realty enterprises, shall be calculated for obtaining the income according to the following principles, on the basis of the nature of the income sources and the ways of sale: (1) As for sales of real estates made in lump payments, the realization date for sales income shall be the time when the payment for the purchase has been actually received or when the certificate (rights) for receiving the payment has been obtained. (2) As for sale of real estates by installments, the payment date agreed on in the sales contract or agreement shall be deemed as the realization date for sales incomes. In case the buyer pays in advance, the actual date of payment shall be deemed as the realization date. (3) As for sale of real estates made in the payments with bank mortgage loans, the date of receiving the down payment (initial payment) shall be deemed as the realization date for sales income, the dates for transferring the remaining payment of the mortgage loans shall be deemed as the realization date for sales incomes. (4) As for sale of real estates made in consignment sale, the realization of the income shall be calculated according to the following principles: 1. Where the sale of the realty on consignment is made in the payment of commissions, the date of obtaining sales income shall be the day when the selling bill from the commission agent on the basis of actual sales is received. 2. Where the sale of realty on consignment is made by way of deemed buy-out, the date of realization of sales income shall be the day when the commission sale bill from the commission agent made according to the prices agreed on the contract or agreement is received. 3. Where the sale of realty on consignment is made by way of exclusive sale, the date of realization of sales income shall be the day when the payment of the prices agreed on in the exclusive sales contract or agreement is made. Where the party having the exclusive selling rights pays in advance, the actual payment date shall be deemed as the date of realization of the sales income. 4. Where the sale of realty on consignment is made in base price (guaranteeing the minimum price) and of the amount of money exceeding the base price shall be shared by both parties, the date of realization of sales income shall be the day when the commission sale bill from the commission agent at the prices calculated according to the base price plus the proportion of income exceeds the base price shared by both parties is received. The consignor and the consignee shall settle the bill of realty sold per month or quarter. The items recorded in the bill of realty sold out shall include the name, location, serial number, quantity, unit price, sum of money and the commission charge of the real estates. (5) As for the real estates sold after being rented, the realization of the income shall be determined in accordance with the following principles: 1. Where the real estates to be sold are transferred into operating capital, and are sold after being rented firstly by way of leasing for business operation or being rented by way of financial leasing, the realization of the sales income shall be determined on the basis of the rent received during the lease, and the realization of the sales income shall be calculated on the basis of the capital sold out when the real estates are sold. 2. Where the real estates to be sold are rented by way of temporary lease, the sales income incurred from the rent during lease shall be calculated on the basis of the rent, and the realization of sales income shall be calculated on the basis of the sale of the real estates when it is sold. (6) As for the income obtained by way of non-monetary capital shared proportionately by the parties, the realization of the income shall be calculated at the time of sharing the real estates. II. CALCULATION OF THE INCOME FROM THE ADVANCE SALE OF REAL ESTATES Where the real estates are sold in advance by the realty enterprises, the enterprise income tax for the current advance sale income incurred shall be paid on the basis of calculating the current taxable income together with the estimated business profits of the advance sale income first calculated on the basis of the preset profit rate, and the settlement shall be adjusted after the realty is accomplished. The estimated business profit rate = the advance sale income of the real estates x the profit rate The profit rate of the advance sale income shall be no less than 15% (including 15%), which shall be determined by the category (or the item) according to the principles of fairness, justice and openness by the competent tax department in charge, as well as the actual condition of this locality. After the completion of the real estates sold in advance, the enterprises shall calculate in time the sales income that has been realized in light of the provisions prescribed in Article 1 of the Circular, meanwhile, carry forward the corresponding sales cost prescribed, and figure out the amount of profit (or loss) that has been realized, then work out the balance between the profits realized and the estimated amount of business profits of the real estates after adjusting the taxable income, and put the balance into the current taxable income. III. CALCULATION OF THE INCOME ARISING FROM THE DEVELOPMENT OF REAL ESTATES DEEMED AS A SALES ACT (1) The calculation of the enterprise income tax for the following act shall be regarded as sales act: 1. The real estates to be used for self-use of the enterprises, donation, patronage, advertisement, sample, welfare of the employee, and award; 2. The real estates to be transferred into business operation capital; 3. The real estates to be used as foreign investment or to be distributed to the shareholders or the investors; 4. The real estates to be used to commute debts; 5. The real estates to be used to exchange the non-monetary assets of other enterprises and institutions or individual persons. (2) The time limit for the realization of income arising from deemed sales act The time limit for the realization of income from the act deemed as sales act shall be the time of transfer of ownership or the usufruct of the real estates or the time of actual obtaining of the interests or the rights. (3) The measures and sequence of the realization of the income arising from the act deemed as sales act 1. It shall be calculated in light of the marketing prices of the same kind of real estates of the enterprises in recent time or of this year; 2. It shall be calculated by the competent tax departments in charge with reference to the market fair value of the same kind of real estates; 3. It shall be calculated by the profit-cost rate, of which the profit-cost rate of the real estates shall be no less than 15% (including 15%), the specific matters shall be determined by the competent tax departments in charge. IV. REALIZATION OF INCOME GAINED FROM CONSTRUCTION ON THE COMMISSION BASIS AND FROM THE PROVISION OF SERVICES Where the construction on commission basis and the services provided by the realty enterprises don't exceed 12 months, the date for the realization of income shall be deemed as the day when payment is settled or when the contract is accomplished; in case that the duration exceeds 12 months, the realization of income shall be calculated quarterly on the basis of the percentage of the project completed. The method of calculating according to the percentage of project completed is one by which the income and expenses are calculated according to the progress of the project completed agreed in the contract. The progress shall be determined in light of the methods such as the proportion between the accumulated contract cost actually occurred and the total estimated contract cost, the proportion between the contract workload having been completed and the total estimated contract workload, and the calculating of the contract workload completed. The materials, tailings, leftover bits and pieces of the scrap construction project or the disused products saved by the realty enterprises in the process of commissioned construction or provision of services, which shall be kept by the real estate development enterprises according to the contract, the date of realization of income shall be deemed as the date of actual acquirement in light of the marketing fair bargaining price. V. DEDUCTION OF THE COSTS AND EXPENSES The realty enterprises shall make a distinction between the period expenses and costs, and between the construction cost of the real estates and the sales cost. The period expenses and sales costs of the real estates may be deducted directly in the current period prescribed. The construction cost of the real estates refers to all the expenditures arise before the completion of the real estates, such as those for compensation for land requisition and for pulling down the original houses and relocating original household, construction of the infrastructure, constructional installation, supporting facilities of the public establishments, overhead expenses of the development, loan expenses and other expenses. The realty enterprises must reasonably divide the construction cost of the real estates into direct cost and overhead cost. The direct cost may be included directly into the cost object in light of the relevant accounting voucher and book record. The overhead cost whose cost-bearing object could be identified may be included directly in the relevant items of the cost object; where the overhead cost whose cost-bearing object could not be identified due to simultaneous development or successive rolling development of several realty projects, it shall be included in the relevant development project cost in light of the principle of proportioning with the method of proportioning the land area occupied by each project, the construction acreage or the budgetary estimate of the project. The following items shall be deducted according to the provisions hereinafter: (1) Sales cost The sales costs of the real estates allowed to be deducted which arise from the current taxable period of the realty enterprises, refer to the cost of the real estates that have been sold, which shall be calculated according to the salable areas realized in the current period and the unit engineering cost of the salable areas. The unit engineering cost and sales cost of the salable areas shall be calculated and determined according to the following formulae: Unit Engineering Cost of the Salable Areas = Total Cost of the Cost Objects / Total Salable Areas Sales Cost = the Salable Areas Realized x Unit Engineering Cost of the Salable Areas (2) Expenses for the compensation of land requisition and pulling down the original houses and relocating original household, and expenses for supporting facilities of the public establishments The expenses for compensation for land requisition and pulling down the original residence and relocating original household, and expenses for supporting facilities of the public establishment which actually arise from the realty enterprises shall be summed up and collected, be distributed according to the different cost objects, and then deducted before paying taxes prescribed. 1. Where the cost actually arises before the completion of the cost object, the expenses shall be apportioned into the corresponding cost object; 2. Where the cost actually arises after the completion of the cost object, the expenses shall firstly be apportioned between the cost object which has been completed and that which has not been completed yet, then the part of expenses which shall be paid by the cost object that has been completed, may be apportioned between the salable areas realized and that not realized, of which the part to be apportioned by the salable areas that have been realized may be deducted in the current period. (3) Loan expenses The loan expenses arising from the capital borrowed for building the real estates by the realty enterprises, shall be included proportionately in the cost object in light of the actual expenses that occur, provided that the expenses arise before the completion of the cost object. In case the expenses arise after the completion of the cost object, the loan expenses shall be deducted directly as the financial expenses before paying taxes. (4) The upkeep costs of the common part and the collective establishments and facilities of the real estates The expenses that arise from the maintenance, keeping, repair and replacement by the realty enterprises in light of the provisions of relevant laws, regulations or the contracts on the common part and the collective establishments and facilities of the real estates sold shall be deducted according to the actual amount of expenses occur excluding the maintenance fund put aside. (5) Expenses for the unused land Where the realty enterprises are engaged in the development of any real estate of which the land use rights are obtained by way of assignment, they must develop the land in light of the purposes of use of the land and the time limit for starting construction and development agreed on in the contract of the assignment of the land use right. The expenses for the unused land paid because of exceeding the date of beginning construction and development agreed on in the assignment contract shall be included in the construction cost of the cost object. The losses occurred as a result of the withdrawal of land use right by the State without compensation shall be deducted as property losses according to the relevant provisions. (6) Losses from the disuse or damage of the cost object The disuse or damage of the single item or the unit project occurs during the construction of the cost object shall be included in the cost of the project that continues to be constructed, subtracting the value of the tailings and the net losses after being compensated by the wrong-doer and the insurance company. In case the items in the cost object are discarded as useless and damaged totally, the net losses thereof shall be directly deducted as property losses in the current taxpaying period according to the prescribed standards. (7) Advertisement expenses and business drumbeating expenses The advertisement expenses and the business drumbeating expenses related to the construction and sale of the real estates arise before obtaining the initial sales income of the real estates by the newly opened realty enterprises shall be carried forward to subsequent years without time limit and be deducted according to the prescribed standard. (8) Depreciation Where the realty enterprises transfer any real estates to be sold into operational assets, the depreciation expenses can be put aside according to relevant provisions and be deducted before paying the enterprise income tax. Where the real estates to be sold that have not been transferred into operational assets or that being rented temporarily prescribed, the depreciation expenses cannot be deducted before paying the taxes. VI. ISSUES CONCERNING THE SCOPE OF APPLICATION AND THE TIME OF IMPLEMENTATION OF THE CIRCULAR This Circular applies to the domestically funded realty enterprises of all kinds of ownership as well as other domestically funded enterprises engaged in the business of developing real estates. This Circular shall come into force from July 1, 2003. Those taxation affairs that happened before thus far and haven't been handled shall be governed by this Circular. |
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