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To further support the development of the house leasing market in China and ensure the stability of the industry, the "Announcement of Improving Tax Policies for Housing Leasing" (No. 24 of 2021) has been issued. The effective date was October 1st, 2021, and the main provisions of which we shall discuss in this article.
Housing leasing enterprises which are general taxpayers of value-added tax (VAT) can choose to apply the simplified taxation method for all rental income obtained by leasing houses to individuals and calculate and pay VAT based on a rate of 1.5% instead of the original 5% rate. Similarly, housing leasing enterprises which are small-scale VAT taxpayers may enjoy the reduced VAT rate of 1.5% instead of the original 5%.
The authorities define “housing leasing enterprises” as an enterprise which business scope includes the leasing of houses and such an enterprise reports to the housing and urban-rural development state department. "Individuals" as included in the regulations include individual, industrial, and commercial households.
Furthermore, the authorities have also announced the reduction of the VAT rate from rental income for businesses whose main scope is outside of housing leasing, but which nevertheless render such services. Thus, enterprises, public institutions, social organizations, and other businesses that lease houses to individuals and specialized large-scale housing leasing companies, can apply the reduced VAT tax rate of 4% on the rental income instead of the original 5%.
As a result of the implementation of this new favorable policy for businesses engaged in leasing activities, the final consumer is also primed to benefit, as ultimately bearing the VAT applied to the leasing companies when paying rent, this burden is now expected to reduce. In the case of individuals, it implies paying lower rents, while companies paying rent on behalf of its employees are likely to see their expenses concurrently reduce. The benefits are especially important for urbanites who pay monthly rent for their housing, which takes a large proportion of one’s disposable income in major cities in China.
The recently implemented policy highlights the authorities’ efforts to keep the property market in the country stable and accessible, as well as to reduce the tax burden of housing leasing enterprises. If you would like to know more about the most recent financial policies and tax developments in China, please contact us at info@phcadvisory.com.
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