On May 19, 2012, the State Administration of Taxation (“SAT”) released a Circular Regarding Certain Issues of Calculating Land Value-Added Tax (“LVAT”), specifying the calculation methods of the LVAT in China.
This Circular consists of 8 items, covering the determination of the income, the developing fee, idle land fee, etc. It stipulated more strict rules on the calculation of the LVAT.
LVAT is a VAT of the land, a type of tax on real estate in China. Usually, the real estate developer is subject to the LVAT for the added-value of the land after development. Calculation of the LVAT is extra progressive, the higher the house price is, the higher the LVAT.
According to the Circular, the determination of the LVAT is based on the receipt, or the sales amount noted in the contract if the receipt is not fully issued. To avoid the misrepresentation of the developer in the developing cost, the Circular also clarify a set of rules in the determination and certification of the development cost.
The Idle Land Fee is another highlight of this Circular. It is stated that idle land fees shall not be deducted in the calculation of the enterprise income tax. While if a real estate developer does not start developing in one year after obtaining the land use right, an idle land fee may be imposed based on 20% of the land grant price. Furthermore, if the development is delay for more than 2 years, the land bureau is entitled to reclaim the land use right without compensation;
In the Circular, the calculation and deduction of the quality deposit, deed tax, resettlement fee and so forth are clearly established as well.
Following the Circular, the SAT also issued an Notice on Strengthening the Collection of Land Valued Added Tax. The publishing of this two documents can be regarded as government’s determination on resolutely curbing the soaring of the house prices and restricting the unreasonable need in the real estate market.
“Resolute calculation of the LVAT may cause a great increase of the enterprise’s taxation cost and curb the exorbitant profits the real estate enterprises can get. Thus, the release of the Circular may play an important role in the regulation and control of the soaring real estate market.” concluded Yu Duo, a tax advisor in Lehman, Lee & Xu.
As a prominent Chinese corporate law firm and trademark and patent agency, Lehman, Lee & Xu has always maintained a focus on the issues of tax law. The firm has also been recognized as one of the top full service as well as intellectual property firms in China by several international magazines. It now has offices in Beijing, Shanghai, Shenzhen, Hong Kong, Macau, and Mongolia. The firm is managed by Mr. Edward Lehman, a leading expert on corporate law with over twenty years of practice experience in Mainland China.
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