Laws of the People's Republic of China

Notice of the Ministry of Finance and the State Administration of Taxation on Some Issues concerning Land Value-added Taxes

Cai Shui [2006] No. 21 March 2, 2006

The public finance departments or bureaus and local taxation bureaus of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designed in the state plan, and the finance bureau of Xinjiang Production and Construction Corps.:

In pursuance of the spirit as embodied in the Interim Regulations of the People's Republic of China on Land Value-added Taxes (hereinafter referred to as the Regulations) and the detailed rules for the implementation thereof as well as relevant provisions, we hereby clarify the relevant issues concerning land value-added taxes as follows:

I.

As for issues concerning the tax collection and exemption in the sale of residential houses of ordinary standard as built by taxpayers as well as in the transfer of ordinary residential houses by individual residents

The "residential houses of ordinary standard" as mentioned in Article 8 of the Regulations and the "ordinary residential houses" as mentioned in Article 3 of the Notice of the Ministry of Finance and the State Administration of Taxation on Adjusting the Tax Policies for the Real Estate Market (Cai Shui Zi [1999] No. 210) shall be recognized all according to the standards for the "small or medium-sized ordinary residential houses at moderate and low prices" as formulated and publicized to the general public by the people's governments of each province, autonomous region or municipality directly under the Central Government in accordance with the Notice of the General Office of the State Council transmitting the Opinions on Doing a Good Job in Stabilizing the Real Estate Price of the Ministry of Construction and Other Departments (Guo Ban Fa [2005] No. 26). Where any taxpayer builds ordinary residential houses as well as other commercial houses, the amount of land added values shall be verified respectively.

As for ordinary standard residential houses, for which, before the day when this document is publicized, an application for tax exemption has been filed to the tax authority at the locality of the real estate and has been given the treatment of exemption from land value-added taxes upon examination in accordance with the standards for ordinary standard residential houses as determined by the people's governments of a province, autonomous region or municipality directly under the Central Government, adjustment shall be retroactively made to the exempted land value-added taxes.

II.

As for Issues concerning the Calculation under the Item of Deduction in the Transfer of Old Houses

Where any taxpayer transfers any old house or building, if he fails to obtain the assessed price but is able to provide the house purchase invoice, the amount under the item of deduction as provided for in items (1) and (3) of Article 6 of the Regulations may, upon the recognition of the local tax authority, be calculated in light of an increased interest rate of 5% on an annual basis of the amount held on it for a term spanning from the year of purchase to the year of transfer. As for the deed tax by a taxpayer when purchasing a house, if the relevant deed tax payment certificate can be presented, it may be deducted as "tax relating to the transfer of real estate" and shall not be included into the base corresponding to the interest rate of 5%.

As to the transfer of any old house or building, in the case of no relevant assessed price or house purchase invoice, the local tax authority may conduct tax collection upon verification in accordance with the provisions of Article 35 of the Law of the People's Republic of China on Tax Collection and Administration (hereinafter referred to as the Tax Collection and Administration Law).

III.

As for issues concerning the advance collection of land value-added taxes as well as the settlement thereof

All regions shall further improve the measures on the advance collection of land value-added taxes, and decide the advance collection rate in a scientific and reasonable manner and adjust it at a proper time in light of the value addition level of the real estate as well as the market development condition within the respective regions and on the basis of the different house categories such as ordinary houses, non-ordinary houses and commercial houses. After a project is completed, the relevant settlement shall be made in a timely manner, with any overpayment refunded or any underpayment supplemented.

In case any tax fails to be paid in advance during the advance collection term, the late fees shall be collected additionally as of the day next to the expiration of the prescribed advance collection term in accordance with the relevant provisions of the Tax Collection and Administration Law as well as the detailed rules for its implementation.

As for any real estate project that has been finished and has gone through the check and acceptance, where the building area of the real estate as transferred makes up 85% or more of the salable building area, the tax authority may require the relevant taxpayer to conduct settlement of land value-added taxes on the transferred real estate in light of the matching principles regarding the proportion between the income as generated from the transfer of real estate and the amount under the item of deduction. The specific settlement methods shall be provided for by the local tax authority of a province, autonomous region, municipality directly under the Central Government and city specifically designed in the state plan.

IV.

As for issues concerning the tax collection and exemption for the real estate as transferred by a taxpayer himself due to the relocation as required for the implementation of urban planning and state construction

In Paragraph 4 of Article 11 of the Detailed Rules for Implementing the Interim Regulations of the People's Republic of China on Land Value-added Taxes, it prescribes that the relocation due to "the implementation of urban planning" refers to the relocation since that the reconstruction of an old city or enterprise pollution or disturbing the residents (producing so excessive waste gases, waste water, waste residues and noises, that the life of urban residents is affected to a certain degree) and thus the government or the relevant administrative departments of the government decides and thereafter carries out the relocation in light of the urban planning that has been examined and approved; the "relocation as required by state construction" refers to a situation under which relocation is required for the purpose of implementing any construction project that has been approved by the State Council, a provincial people's government, or the relevant ministry or commission of the State Council.

V.

As for Issues concerning the tax collection and exemption for the investment or joint management with real estate

As for any investment or association by using land (real estate) as payment for the purchase of shares, where an enterprise involved in the investment or joint management engages in the real estate development or where any other real estate development enterprise makes investment or conducts joint management with the commercial houses built by itself, it shall not be subject to Article 1 of the Notice of the Ministry of Finance and the State Administration of Taxation on the Provisions on Some Specific Issues regarding Land Value-added Taxes (Cai Shui Zi [1995] No. 048) on the interim exemption of land value-added taxes.

VI.

The present Notice shall go into effect as of March 2, 2006.