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  • China Tax Issues to House Leasing

China Tax Issues to House Leasing

2023-11-08
In recent years, more and more companies chose to rent houses to develop their own operation and business activities. In order to promote a healthy house leasing market, the government has successively introduced a series of policies. This article will analyze the relevant taxes involved in house leasing by different entities in accordance with the relevant preferential tax policies of Shenzhen, for Kaizen clients’ reference.

  1. Real Estate Development Companies Rent Out Self-Built House Property

    (1)
    		 Value Added Tax

    Determined by the nature of the business, real estate development companies are generally as general taxpayers (with annual sales exceeding CNY5 million), and they rent out their self-built house properties shall pay VAT in accordance with the following regulations.

    Taxpayers

    Behaviors

    Calculation Method

    General Taxpayers

    Rent out self-built house properties before April 30, 2016

    Simplified Method:

    Tax Payable

    =Income (VAT inclusive) ÷（1+5%）× 5%

    Rent out self-built house properties after May 1, 2016

    General Method:

    Tax Payable

    =Income (VAT inclusive) ÷（1+9%）× 9%

    Small-scale Taxpayers

    Rent out self-built house properties projects

    Simplified Method:

    Tax Payable

    =Income (VAT inclusive) ÷（1+5%）× 5%


    If the location of the leased self-built house properties is not in the same county (city) as the location of the company, the VAT prepayment should be made at the location of the house properties:

    Taxpayers

    Behaviors

    Prepaid Method

    General Taxpayers

    Rent out self-built real estate before April 30, 2016

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive) ÷（1+5%）× 5%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable = 0

    Rent out self-built real estate after May 1, 2016

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive) ÷（1+5%）× 3%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable

    = Income (VAT inclusive) ÷（1+9%）× 9% - Tax Prepaid

    Small-scale Taxpayers

    Rent out self-built real estate projects

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive) ÷（1+5%）× 5%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable = 0


    Note:
    According to relevant policies, from January 1, 2019 to December 31, 2021,VAT exempted if the small-scale taxpayers’ monthly sales income does not exceed CNY100,000 (quarterly sales does income not exceed CNY300,000).
    (2)
    		 Surcharge Taxes

    Surcharge Taxes

    Tax Basis

    Tax Rate

    Urban Maintenance and Construction Tax

    VAT Amount

    7%，5% or 1%

    Surcharge for Education

    VAT Amount

    3%

    Surcharge for Local Education

    VAT Amount

    2%


    Note:
    Shenzhen urban construction tax rate is 7%. If small-scale taxpayers meet the conditions for exemption from VAT, surcharge taxes are also exempt. If small-scale taxpayers are required to pay value-added tax, the surcharge tax will be levied by half.
    (3)
    		 Property Tax

    The tax law stipulates that the tax basis of the property tax levied on house leasing is the rental income (VAT inclusive). The tax calculation formula is:

    Tax payable = Rental Income Excluding VAT  × 12%

    Note:
    According to the relevant policies, from January 1, 2019 to December 31, 2021, the property tax of small-scale taxpayers will be reduced by half. In addition, Shenzhen Real Estate Development Company rents self-built houses and levies property tax based on the price. The calculation formula is:

    Tax payable = Original Value of Taxable Property × 70% × 1.2% ÷ 12 × Months Due
    (4)
    		 Stamp Duty

    Companies renting out house properties shall pay stamp duty at 0.1% of the total rental amount in the lease contract concluded by both parties. The tax amount is CNY1 if the calculation tax amount is less than CNY1.

    Note:
    According to the relevant policies, from January 1, 2019 to December 31, 2021, the stamp duty of small-scale taxpayers will be reduced by half.
    (5)
    		 Enterprise Income Tax

    The tax law stipulates that the real estate development companies shall incorporate the rental income obtained by house leasing into the total income of the enterprise to calculate and pay enterprise income tax. The general tax rate is 25%.

    Note:
    According to the relevant policies, small and low-profit enterprises can enjoy preferential tax rates from January 1, 2019 to December 31, 2021

  2. General Companies Rent Out House Property

    (1)
    		 Value Added Tax

    Taxpayers

    Behaviors

    Calculation Method

    General Taxpayers

    Rent out house properties which  acquired

    before April 30, 2016

    Simplified Method:

    Tax Payable

    = Income (VAT inclusive) ÷(1+5%)× 5%

    Rent out house properties which acquired

    after May 1, 2016

    General Method:

    Tax Payable

    = Income (VAT inclusive) ÷(1+9%)×9%

    Small-scale Taxpayers

    House properties leased by units and individual industrial and commercial households

    Tax Payable

    = Income (VAT inclusive)÷(1+5%)×5%

    Non-residential houses leased for individual industrial and commercial households

    Tax Payable

    = Income (VAT inclusive)÷(1+5%)× 1.5%


    If the location of the leased self-built house properties is not in the same county (city) as the location of the company, the VAT prepayment should be made at the location of the house properties:

    Taxpayers

    Behaviors

    Prepaid Method

    General Taxpayers

    Rent out house properties which  acquired

    before April 30, 2016

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive)÷(1+5%)×5%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable = 0

    Rent out house properties which acquired

    after May 1, 2016

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive)÷(1+5%)×3%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable

    = Income (VAT inclusive)÷(1+9%)×9%

    - Tax Prepaid

    Small-scale Taxpayers

    House properties leased by units and individual industrial and commercial households

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive)÷(1+5%)×5%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable = 0

    Non-residential houses leased for individual industrial and commercial households

    Prepay to the competent tax authorities where the real estate is located:

    Tax Prepaid

    = Income (VAT inclusive)÷(1+5%)×1.5%

    Tax declaration to the competent tax authority where the organization is located:

    Tax Payable = 0


    Note:
    According to relevant policies, from January 1, 2019 to December 31, 2021,VAT exempted if the small-scale taxpayers’ monthly sales income does not exceed CNY100,000 (quarterly sales does income not exceed CNY300,000).
    (2)
    		 Surcharge Taxes

    Surcharge Taxes

    Tax Basis

    Tax Rate

    Urban Maintenance and Construction Tax

    VAT Amount

    7%，5% or 1%

    Surcharge for Education

    VAT Amount

    3%

    Surcharge for Local Education

    VAT Amount

    2%


    Note:
    Shenzhen urban construction tax rate is 7%. If small-scale taxpayers meet the conditions for exemption from VAT, surcharge taxes are also exempt. If small-scale taxpayers are required to pay value-added tax, the surcharge tax will be levied by half.
    (3)
    		 Property Tax

    The tax law stipulates that the tax basis of the property tax levied on house leasing is the rental income (VAT inclusive). The tax calculation formula is:

    Tax payable = Rental Income Excluding VAT  × 12%

    Note:
    According to the relevant policies, from January 1, 2019 to December 31, 2021, the property tax of small-scale taxpayers will be reduced by half. Shenzhen companies can enjoy 3 years of property tax exemption for new purchased from the primary market.  In addition, Shenzhen companies rent out owned houses and levies property tax based on the price. The calculation formula is:

    Tax payable = Original Value of Taxable Property × 70% × 1.2% ÷ 12 × Months Due
    (4)
    		 Stamp Duty

    Companies renting out house properties shall pay stamp duty at 0.1% of the total rental amount in the lease contract concluded by both parties. The tax amount is CNY1 if the calculation tax amount is less than CNY1.

    Note:
    According to the relevant policies, from January 1, 2019 to December 31, 2021, the stamp duty of small-scale taxpayers will be reduced by half.
    (5)
    		 Enterprise Income Tax

    Real estate development companies shall incorporate the rental income obtained by house leasing into the total income of the enterprise to calculate and pay enterprise income tax. The general tax rate is 25%.

    Note:
    According to the relevant policies, small and low-profit enterprises can enjoy preferential tax rates from January 1, 2019 to December 31, 2021

  3. Individual Rent Out House Property

    (1)
    		 Value Added Tax

    For residential houses rented by individuals, the VAT payable shall be calculated at a levy rate of 5% and levy at 1.5%. For non-residential houses rented by an individual, the VAT payable shall be calculated at a levy rate of 5% and levy at 5%.

    Residential House
    Tax Payable = Rental Income (VAT inclusive) ÷ (1+5%) ×1.5%

    Non-residential House
    Tax Payable = Rental Income (VAT inclusive) ÷  (1+5%) × 5%

    Note:
    According to the relevant policies, individuals shall collect rental income from house leasing by lump-sum rental , it can be equally apportioned during the lease period. VAT exempted if the apportioned monthly rental income does not exceed CNY100,000.
    (2)
    		 Surcharge Taxes

    Surcharge Taxes

    Tax Basis

    Tax Rate

    Urban Maintenance and Construction Tax

    VAT Amount

    7%，5% or 1%

    Surcharge for Education

    VAT Amount

    3%

    Surcharge for Local Education

    VAT Amount

    2%


    Note:
    Shenzhen urban construction tax rate is 7%. If individual taxpayers meet the conditions for exemption from VAT, surcharge taxes are also exempt. If the individual taxpayers are required to pay value-added tax, the surcharge tax will be levied by half.
    (3)
    		 Property Tax

    The tax law stipulates that when an individual rents out a residential house, the tax payable should be calculated based on the rental income (VAT exclusive) multiplied by tax rate of 4%. If the non-residential houses rented by an individual, the tax payable shall be calculated at tax rate of 12%.

    Residential House
    Tax Payable = Rental Income (VAT exclusive) × 4%

    Non-residential House
    Tax Payable = Rental Income (VAT exclusive)× 12%

    Note:
    Shenzhen's preferential policy for the property tax related to house leasing by individual is that the property tax is calculated based on the rental income (tax exclusive) multiplied by 2%, regardless of residential houses or non-residential houses.
    (4)
    		 Stamp Duty

    Residential House: Exempted
    Non-residential House: Tax Payable = Rental Income on Lease Contract ×0.1%

    Note:
    For non-resident houses rented by individuals, stamp duty can be levied by half.
    (5)
    		 Individual Income Tax

    The tax law stipulates that individuals obtained rental income from house leasing, shall be calculated and paid individual income tax according to the item of “Property Lease Income”, and the tax rate is 20%. Individual income tax is temporarily reduced at 10%. If an individual rents out a non-resident house, he shall pay individual income tax at a rate of 20%.

    Residential House
    Monthly rental income less than CNY4,000
    Tax Payable  =  [Monthly Rental Income – Deduction Items – Maintenance Cost (Limit to CNY800) – CNY800] ×10%

    Monthly rental income more than CNY4,000
    Tax Payable  =  [Monthly Rental Income – Deduction Items – Maintenance Cost (Limit to CNY800)] × (1-20%) × 10%

    Non-residential House
    Monthly rental income less than CNY4,000
    Tax Payable  =  [Monthly Rental Income – Deduction Items – Maintenance Cost (Limit to CNY800) – CNY800] × 20%

    Monthly rental income more than CNY4,000
    Tax Payable  =  [Monthly Rental Income – Deduction Items – Maintenance Cost (Limit to CNY800)] × (1-20%) × 20%

    Note:
    Shenzhen's preferential policies for individual income tax related to house leasing by individual are as follows (this preferential policy has not been issued to public by the Shenzhen Taxation Bureau):

    Non-residential House
    Tax Payable = Monthly Rental Income (VAT exclusive) × 0.5%

    Non-residential House
    Tax Payable = Monthly Rental Income (VAT exclusive) × 1%

For the comparison of various taxes involved in house leasing by different entities, the conditions of small and low-profits enterprise and the enterprise income tax preferential policies, please refer to the “Comparison Table of China Tax Issues to House Leasing”

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advices and services in respect of the formation and registration of company, application for various business licences and permits, company compliance, tax planning, audit and accounting in China. Please call and talk to our professional consultants for details.

Disclaimer

All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

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