Page 38 - Doing Business in China

TAXATION

TONNAGE TAX
On 1 July 2018, the Tonnage Tax Law of PRC was implemented� Tonnage tax is a tax levied on the use of navigational
AIDS such as maritime AIDS� It is collected by the customs authorities and is calculated based on the net tonnage
of the ship and the term of the tonnage license� The tax payable for tonnage tax is derived by multiplying the net
tonnage of the ship by the applicable tax rate�

The taxpayer is liable for the tonnage tax on the date when the ship enters the port�

LAND VALUE-ADDED TAX
Gains on the sale of real property, net of development costs, are subject to the land value-added tax� Land value-
added tax applies to all types of land, construction and immovable property, including commercial, industrial and
residential sites� The current regulations provide for a deduction of qualifying financing expenses, related taxes,
and administration and selling expenses, with prescribed caps for different situations� A super deduction equal
to 20% of the combined property development and land purchase cost is available for real estate development
companies� Land value-added tax is charged in four bands ranging from 30% to 60%, depending on the percentage
of gain realised�

a) Calculation of Land value-added tax
Land value-added tax is calculated on the value-added gained by the entities or individuals through the
assignment of state-owned land use rights, buildings and other facilities attached to the land�

Value added gained = Income derived (cash and/or other assets) – Deductible items

Land value-added tax payable = Value added gained x Applicable tax rate – Quick calculation deduction

Deductible items include:
• Cost of obtaining land use rights
• Cost of developing the land, including construction costs
• Marketing expenses, management expenses and financial expenses

• Taxes and dues relating to the transfer of state-owned land use rights, buildings and other facilities
attached to the land�
• The assessed price for the transfer of old buildings

• Other deductions specified by the Ministry of Finance

b) Exemptions
Taxpayers are exempt from land value-added tax under the following circumstances:
• The value added amount of the ordinary residential buildings constructed and sold by the taxpayer for civil
use is less than 20% of the deductible items�
• The land is acquired by the state due to mandatory state or municipal-planned construction requirements�
• Subject to the approval of the tax authorities, an individual is transferring his/her ordinary residential
property due to a change of employment�
• The taxpayer had used the property as his/her primary residence for at least five years�

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