China Imposes Yet More Taxes On Real Estate

by Mary Swire, Tax-News.com, Hong Kong

31 July 2006

The Chinese government will from next month introduce more tax measures in order to curb speculative investment in the country's booming real estate sector.

China's State Administration of Taxation has announced that from August 1, it will begin imposing a tax of between 1% and 3% on the proceeds of certain property sales in the secondary market if it cannot be established how much the seller originally paid for the property, making it difficult to impose capital gains tax. The tax will only apply if the seller has held the property for less than five years.

China imposes a 20% capital gains tax on property sales, but since the law was introduced in 1994 it has rarely been enforced. However, the tax authority announced that it will begin to enforce this tax, also from August 1.

In addition, tax will be collected before the completion of property sales rather than after the sale as is the case at present.

The new measures follow closely in the wake of a joint announcement by six government agencies of new restrictions designed to make it harder for foreign investors to buy into Chinese real estate, as the government attempts to avert a dangerous bubble in the property market.

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