Land Appreciation Tax
The land appreciation tax is imposed on the increment value of the transfer of State-owned land use rights, aboveground structures and their attached facilities, and is collected at the specified tax rate. The taxpayer shall file the tax returns with the competent tax authority where the real estate locates within 7 days upon the execution of the real estate transfer contract, and pay the land appreciation tax within the time limit designated by the tax authority.
Where the land appreciation tax can be calculated due to the involvement of cost determination or other reasons, the provisional land appreciation tax may be collected in advance, settled after the completion of the project, and refunded for any overpayment or supplemented for any deficiency.
Land appreciation tax ("LAT") Explained
LAT is levied on certain gains realised from real property transactions at progressive rates from 30% to 60%, based on the "land value appreciation amount" which is the consideration received from the transfer or disposition of real property less the "total deductible amount".
For taxpayers engaged in a real estate development business, the "total deductible amount" includes:
- The amount spent on obtaining the land use right;
- Costs of real property development and construction;
- Finance expenses, such as interest, may be deducted in certain circumstances. Other real property development expenses
(i.e. selling and administrative) are limited to 5% of the total amount expended to acquire the land use right and the costs of real property development and construction;
- Taxes in connection with the transfer of real property (generally business tax and stamp tax); and
- For taxpayers engaged in a real estate development business,
an additional deduction equal to 20% of the sum of the rest two cost items noted above is allowed.
For disposal of used properties, the deductible amount includes the assessed value of the used building and the taxes incurred upon the disposal.
The Land Appreciation Tax adopts four levels of progressive rates;
|Level||Tax base||Tax rates|
|1||That part of the appreciation amount not exceeding 50% of the sum of deductible items||30%|
|2||That part of the appreciation amount exceeding 50%, but not exceeding 100%, of the sum of deductible items||40%|
|3||That part of the appreciation amount exceeding 100%, but not exceeding 200%, of the sum of deductible items||50%|
|4||That part of the appreciation amount exceeding 200% of the sum of deductible items||60%|
Computation of tax payable
To calculate the amount of Land Appreciation Tax payable, the first step is to arrive at the appreciation amount derived by the taxpayer from the transfer of real estate, which equals to the balance of proceeds received by the taxpayer on the transfer of real estate after deducting the sum of relevant deductible items. Then the amount of tax payable shall be calculated respectively for different parts of the appreciation by applying the applicable tax rates in line with the percentages of the appreciation amount over the sum of the deductible items. The sum of the amount of tax payable for different parts of the appreciation shall be the full amount of tax payable by the taxpayers.
The formula is:
Tax payable = Σ (Part of appreciation × Applicable rate)
The Land Appreciation Tax shall be exempt in situations where the appreciation amount on the sale of ordinary standard residential buildings construction by taxpayers for sale does not exceed 20% of the sum of deductible items and when the real estate is taken over or repossessed in accordance to the laws due to the construction requirements of the State.
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