House Property Tax

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11 House Property Tax

This tax is levied on prescribed house properties. The Provisional Regulations of the People's Republic of China on House Property Tax currently in force were promulgated by the State Council on September 15, 1986, and came into effect on October 1 of the same year.

House Property Tax is administered and collected by the local tax bureaus. The revenue collected belongs to the local governments. In 2003, revenue from House Property Tax amounted to 27.33 billion yuan, accounting for 1.4% of the country's total tax revenue.

TAXPAYERS

General Guidelines

Entities Subject to Tax

Any of the following entities, excluding enterprises with foreign investment, foreign enterprises, and foreigners, may be subject to the tax, which is levied in cities, county towns, State-designated townships, and industrial/mining districts.

State-owned enterprises (SOEs), collectively-owned enterprises, private enterprises, joint-equity enterprises, and other enterprises.
Administrative units, non-profit institutions, military units, social organizations, and other units.
Individual businesspersons and other individuals.

Responsibility for Paying Tax

The actual taxpayers include the owners, management units, mortgagees, custodians, and users of house properties.

Where the property is owned by the State, tax is paid by the managing units.
Where the property is mortgaged, tax is paid by the mortgagees.
Where the owners or the mortgagees of the property do not reside or conduct business at the property, where the ownership of the property has not been determined, or where disputes over the mortgage have not been resolved, tax is paid by the custodian or the users.

Entities Taxable Under Other Categories

Under tax law, enterprises with foreign investment, foreign enterprises, and foreigners should pay Urban Real Estate Tax.

TAXABLE PROPERTY AND TAX RATES

Taxable Property

The tax base of a house property may be computed in one of two ways.

By residual value.
By rental income.

Residual Value

The residual value of a property is calculated by subtracting 10%–30% from the original value of the property.

The specific subtraction level shall be stipulated by the People's Government at the provincial level. For example, Beijing and Sichuan have stipulated it at 30%.

Original Value

The original value of a house property refers to the original price of the house as recorded under the “fixed assets” section of the accounting books that are maintained by the taxpayers in accordance with accounting rules.

It includes the construction price, the price of indispensable attached equipment, and the value of corresponding facilities not separately priced (such as lighting, gas, heating, sanitation, and various pipes and electrical and telephone lines).

Adjustments in Value

Adjustments may be necessary in certain situations.

Where the taxpayers fail to record the original price of the property, the original value used for tax computation shall be adjusted in accordance with prevailing rules.
Where the original value recorded is obviously unreasonable, the value of the property shall be re-appraised.
Where no original value is provided as the basis for tax computation, the local tax department in the locale where the property is situated shall assess the original value with reference to properties of the same type.

Rental Income

Where the property is leased, the tax base is the rental income from the property.

Tax Rates

The rate used depends on the valuation method used to compute the tax base.

Properties assessed on residual value: 1.2%.
Properties assessed on rental income: 12%.

COMPUTATION METHODS

In general, the following formula is applied to compute tax payable:

Tax payable = Tax base × Applicable tax rate

Example

A building used by an enterprise for business operations has an original value of 10 million yuan, and the subtraction level allowed is 20% of the original value. The applicable tax rate is 1.2%.

Tax payable = (10 million yuan − {10 million yuan × 20%}) × 1.2% = 96,000 yuan

Example

A citizen leases a house and receives rental income of 20,000 yuan every year. The applicable tax rate is 12%.

Tax payable = 20,000 yuan × 12% = 2,400 yuan

TAX REDUCTIONS AND EXEMPTIONS

General Guidelines

Exemptions or reductions may be granted under various circumstances.

Applying for Exemption/Reduction in Cases of Hardship

Where the taxpayers have difficulty paying the tax, they may receive periodic exemptions or reductions, upon approval by the People's Government at the provincial level.

Tax-Free Units

Joint Use

Where tax-free and taxpaying units jointly use the properties, the units should calculate the proportions used by each, for tax computation or applications for exemption.

Rental Properties

Where tax-free units rent properties, and the properties are not used for the production/business operations of the units, tax should be levied.

Some Common Exemptions

The house properties discussed below may be granted exemptions or temporary exemptions.

Health Care-Related Institutions

Non-Profit Institutions

Where the properties of non-profit medical institutions, disease control institutions, women and child care institutions, or health institutions are allocated for self-use, they may be exempt.

Profit-Making Institutions

Where income earned by profit-making medical institutions is used to directly improve medical and health conditions, any properties for their self-use may be exempt for 3 years, starting from the date that they receive their business licenses.

Welfare-Related Institutions

Where non-profit institutions serving the aged have investments from government departments, institutional units, social organizations, or individuals, properties allocated for their self-use may be exempt.

Subsidized Housing

Publicly owned houses that are rented out at State-prescribed prices or houses that are rented out at low prices may be granted temporary exemptions.

Residences rented out by individuals at market prices may be taxed at temporary rate of 4%.

Science and Research Institutions

Non-Profit Institutions

Where the land of non-profit science and research institutions are allocated for self-use, they may be exempt.

Institutions that Become or Join Enterprises

Where qualified science and research institutions become enterprises or join enterprises, properties used for science and research development may be exempt for 7 years, starting from the date that the change is registered.

Commodity Houses Before Sale

No tax shall be levied on commodity houses built by realty development enterprises before they are sold (except for those that have been used, leased, or rented out).

Others

Where properties are allocated for the private use of State organs, people's organizations, or the armed forces, they may be exempt. Temporary exemptions may be granted for leasing revenue from the vacant houses of the army.
Where properties are provided for the private use of institutions whose operating expenses are allocated by State finance departments, they may be exempt.
Where properties are allocated for self-use by schools, kindergartens, or nurseries run by enterprises, they may be exempt.
Where properties are allocated for the private use of religious temples or shrines, parks or places of historic interest or scenic beauty, they may be exempt.
Where properties are owned by individuals for non-business purposes, they may be exempt.
Exemptions may be granted for damaged houses and perilous houses that are out of use, after appraisal by the relevant departments.
Where properties are allocated for self-use by railway transportation enterprises under the Ministry of Railway, they may be exempt.
Where temporary houses are provided at construction sites to facilitate construction, they may be exempt from tax during the period of construction.
Where houses have been under repair and out of use for more than half a year, tax may be exempt during the period of repair.
Other house properties, as approved by the Ministry of Finance for exemption.

TIME LIMIT AND PLACE FOR TAX PAYMENT

Time Limits for Payment

Tax is calculated on an annual basis and paid in installments. The time limit for tax payment shall be determined by the People's Government at the provincial level.

At present, tax is generally paid on a quarterly or biannual basis, with a specified time limit. For example, Beijing rules that tax should be paid in two installments, which should be paid over the periods April 1–15 and October 1–15.

Main Categories

Self-Constructed Houses

The taxpayers should start to pay tax in the month following the completion of the houses.

Houses Constructed by Construction Enterprises

Where houses are constructed by construction enterprises on behalf of the taxpayers, tax shall be collected starting in the month after the formalities such as checks and acceptances of the houses have been conducted.

Newly Constructed Houses that are Used/Leased/Rented Out

Where newly constructed houses are used, leased, or rented out, tax shall be paid before the formalities such as checks and acceptances of the houses have been conducted.

Newly Constructed Commercial Houses

Where newly constructed commercial houses are acquired, tax should be paid in the month following the one in which the houses are delivered for use.

Commercial Houses Constructed by Realty Development Enterprises

Where realty development enterprises self-use, lease, or lend commercial houses they have constructed, tax should be paid in the month following the one in which the houses are first used or delivered.

Previously Occupied Houses

Where previously occupied houses are acquired, tax should be paid in the month following the one during which formalities such as the transfer of the house title and the change in registration are handled, and the Realty Title Registration Department issues the house ownership certificate.

Houses that are Leased/Rented Out

For the houses that are leased or lent out, tax should be paid in the month following the one in which the houses are delivered for leasing or lending.

Places for Payment

The taxpayers should pay tax to the relevant tax authorities in the locales where the properties are situated.

Where the property is not confined to one location, the taxpayers should pay tax separately to the tax departments in the various locales where the property is located.

Taxation in China