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The Law of the People's Republic of China on the Individual Income Tax as well as the detailed regulation on implementation prescribe: As to an individual's transfer of his house, the taxable amount shall be the balance after deducting the original house value as well as reasonable fees from the transfer income, and the individual income tax shall be paid under the item of "incomes generated from property transfer". Thereafter, with the economic development of China, specific provisions are made in the Circular of the Ministry of Finance, the State Administration of Taxation and the Ministry of Construction on Collecting the Individual Income Tax on the Incomes Generated from Individual House Transfer (No. 278 [1999] of the Ministry of Finance) regarding the computation of the taxable individual income generated from the individuals' house transfer as well as the individuals' income tax on house re-purchase. At the present time, in the process of collecting individual income taxes on house transfers, some regions have reported some problems that require further clarification. In order to perfect the system and intensify the administration of tax collection and according to the spirit in the relevant provisions of the laws on the individual income tax as well as tax collection and administration, we hereby notify the following relevant issues as follows: I. With regard to the collection of individual income tax on a house transfer, the income as generated from the transfer shall be the actual trading price. Where any trading price of a house transfer declared by a taxpayer is significantly lower than the market price without any justifiable reason, the tax collection organ is empowered to verify the income generated from the transfer based on the relevant information according to law, guaranteeing the consistency among the taxable prices of all tax items. II. When computing the taxable amount of the income generated from a house transfer for the individual income tax, a taxpayer may, with the original contract of the house purchase and all the relevant invoices after examination and approval by the tax authority, be allowed to deduct the original house value, taxes paid for the house transfer and all the relevant reasonable expenses incurred from the income generated from the house transfer. (1) "original house value" refers to: 1. a commercial house: the house price as actually paid and relevant taxes and fees that occur in the process of house purchase; 2. a self-built house: the construction expenses as actually incurred, the relevant taxes and fees actually paid in the process of carrying out construction and obtaining the house property right; 3. an economically affordable house (including a house based on the collection of money and collaboration as well as a house of the Comfort Residence Project): the house price actually paid by the original house purchaser, the relevant taxes and fees, and the land transfer fee paid according to the relevant provisions. 4. a publicly owned house purchased: the price of the publicly owned house originally purchased, that is calculated by multiplying the standardized area of the house with the price of a local economically affordable house, plus the price actually paid for the standardized area of the house and the relevant taxes and fees paid to the public finance department (or the original house property entity) according to the relevant provisions. "Publicly owned house purchased" refers to a publicly owned house that an urban employee has purchased in light of the cost price (standard price) according to the provisions of the reform policies for urban housing system prescribed by the state or the people's governments at or above the county level. "Price of a local economically affordable house" shall be determined according to the standard as stipulated by the local people's governments at or above the county level. 5. an urban dismantlement and relocation house: According to the Regulation on the Administration of Dismantlement and Relocation of Urban Houses (Order No. 305 of the State Council) and the Circular of the Ministry of Construction on Printing and Distributing the Guiding Opinions on the Assessment of Dismantlement and Relocation of Urban Houses (No. 234 [2003] of the Ministry of Construction), the original values are as follows respectively: (a) Where the monetary compensation is made for house dismantlement so as to repurchase another house, the sum of the price as actually paid for house purchase as well as the relevant taxes and fees; (b) Where the means of transferring the house property right is adopted for house dismantlement, the original value of the transferred house shall be the sum of the price as indicated on the Agreement on the Compensation for and Relocation of House Dismantlement as well as the relevant taxes and expenses; (c) Where the means of transferring the house property right is adopted for house dismantlement and if a person whose house has been dismantled obtains not only another house but also some monetary compensation, the original value of the transferred house shall be the balance upon deducting the monetary compensation from the price as indicated on the Agreement on the Compensation for and Relocation of House Dismantlement and the relevant taxes and fees; (d) Where the means of transferring the house property right is adopted for house dismantlement and if a person whose house has been dismantled obtains another house by paying some money, the original value of the transferred house shall be the sum of the price as indicated on the Agreement on the Compensation for and Relocation of House Dismantlement, the money as otherwise paid as well as the relevant taxes and fees. (2) "Taxes paid for house transfer" refers to the business tax, city maintenance and construction tax, educational surcharge, land value-added tax and stamp tax as actually paid by a taxpayer for his house transfer. (3) "Reasonable fees" refers to such expenses as house decoration expenses, house loan interests, expenses for formalities and notarization, etc. as actually paid according to the relevant provisions. 1. "house decoration expenses": if a taxpayer can provide uniform tax invoices for the decoration expenses he has actually paid, on which, the name of the payer is consistent with that of the person who transfers his property right, the expenses for decoration that has actually occurred before the transfer may, upon examination and approval by the tax authority, be deducted within the proportion as prescribed as follows: (a) a publicly owned house or an economically affordable house: at the maximum deduction rate of 15% of the original house value; and (b) a commercial houses any other kind of houses: at the maximum deduction rate of 10 % of the original house value. Where a house as originally purchased by a taxpayer has been furnished, namely, the relevant decoration expenses (with the floor laid and the cleaning utensils and kitchen utensils equipped) is included in the house price indicated on the contract, the decoration expenses shall not be re-deducted any more. 2. "payment of the house mortgage loan interests": if a taxpayer sells a house that has been purchased by means of mortgage loans, the house loan interests he has actually paid to the relevant loaning bank shall be deducted according to the effective certification as produced by the bank. 3. Where a taxpayer has paid the relevant fees for formalities and notarization according to the relevant provisions, the deduction shall be made according to the effective certification as produced by the relevant department. The provisions of this Article shall come into force as of August 1, 2006. III. Where a taxpayer fails to provide complete and accurate certificates of the original house value and fails to correctly calculate the original house value and taxable amount, the tax authority may, according to the provisions of Article 35 of the Law of the People's Republic of China on Tax Collection, apply a verified tax collection, namely, in the collection of the individual income tax, the taxable amount shall be verified in light of a specific proportion of the house transfer income of the taxpayer. The specific proportion shall be determined by the tax authority at the provincial level or by the tax authority at the prefecture or municipal level as authorized by its counterpart at the provincial level based on the region, geographical location, time of building, type of house and the average housing price etc. of the house as sold by a taxpayer and within a range of 1%-3% of the income generated from the house transfer. IV. The tax authorities at all levels shall implement the Circular of the State Administration of Taxation on Further Intensifying the Administration of the Real Estate Tax Collection (No. 82 [2005] of the State Administration of Taxation) as well as the Circular of the State Administration of Taxation on Implementing the Several Issues Regarding the Unified Administration of the Real Estate Tax Collection (No. 156 [2005] of the State Administration of Taxation). In order to facilitate an individual house seller's performance of his obligation of tax payment and intensify the tax collection, the administrative tax authority shall establish a tax collection window in the trading place of real estates, and the individual income tax on house transfers shall be handled together with the business tax, deed tax and land value-added tax as due in the link of transfer. Where any local tax authority has not been so well-prepared to set any tax collection window in the trading place of real estate, it shall entrust the department in charge of collecting the deed tax to collect the relevant individual income tax as well. V. The tax authorities at all levels shall earnestly carry into effect the relevant preferential policies for the individual income tax on house transfer. According to the provisions of the Circular of the Ministry of Finance, the State Administration of Taxation and the Ministry of Construction on the Collection of Individual Income Tax on Individuals' House Sales (No, 278 [1999]) of the Ministry of Finance), a taxpayer that sells his own house and plans to re-purchase a house at the market price within 1 year as of the house sale, the individual income tax on the sale of his present house shall be paid in the form of a deposit, which may be refunded wholly or partially in respect of the relationship between the house re-purchase price and the original house sales price. Where any house is transferred by any individual for self-use, which is the only source of incomes for living, the individual tax income shall be exempted. The aforesaid preferential policies shall be carried out thoroughly so as to guarantee the legitimate rights and interests of taxpayers. VI. The tax authorities at all levels shall do a good job in the collection, refund and administration of the deposits for the payment of individual income tax on house transfer. The tax authorities shall, according to the Circular of the Ministry of Finance, the State Administration of Taxation and the Ministry of Taxation on the Collection of the Individual Income Tax on Individuals' House Sales (No. 278 [1999] of the Ministry of Finance) as well as the Circular of the State Administration of Taxation, the Ministry of Finance and the People's Bank of China on Printing and Distributing the Measures for the Administration of the Taxation Capital Custody Accounts (No. 181 [2005] of the State Administration of Taxation), establish an exclusive account of deposits for individual income taxes, establish an archive of the taxpayers who have paid the deposit and intensify the collection, comparison and examination of the information on the deposit for tax return; publicize and explain the policies and procedures for collecting and refunding the deposit for tax return and do a good job in the refunding of the deposit for tax return and ensure a timely handling for those who meet the relevant requirements. VII. The tax authorities at all levels shall earnestly publicize and carry into effect the relevant policies for tax collection and safeguard all the legitimate rights and interests of taxpayers. Firstly, we should publicize the law on the individual income tax as well as relevant policies for tax collection in a continuous manner and on a wide base, intensify the tutoring of taxpayers and tax collectors on how to pay the individual income tax on the incomes generated from house trade. Secondly, we should intensify the coordination and communication with the administrative department of real estate as well as intermediary agencies, bring into full play the function of intermediary agencies in assisting and guaranteeing the tax collection so as to help the taxpayers to accurately calculate the taxable amount. Thirdly, we should earnestly implement the requirements for deducing or exempting the taxes from the incomes generated from house trade as well as the simplifying the procedures for examination and approval, clarify the relevant materials that the taxpayers are required to submit and do a good job in the examination and authentication of tax materials. Fourthly, as to any income generated from a house sale that meets the policies for tax deduction or exemption, we should handle the formalities for examination and approval of tax deduction or exemption in a timely manner. |
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