China Clarifies Urban Land Use Tax and Real Estate Tax Issues

The Ministry of Finance and the State Administration of Taxation co-issued the “Circular on Urban Land Use Tax (ULUT) for Enterprises Employing the Handicapped and Other Tax Policies (caishui [2010] No.121)” on December 21, 2010. The circular emphasized that enterprises will receive favorable tax treatment through employing the handicapped, and clarified several calculation methods regarding the real estate tax (RET).

Part One of the circular says companies can have their ULUT exempted or reduced, if the handicapped personnel it hires is no less than 10 people and accounts for no less than 25 percent of the total employees during a tax year. The ULUT exemption or reduction details shall be determined by provincial tax authorities.

The rest of the circular clarified the following two issues regarding the RET.

• Property owners shall still pay RET even during the rent-free period in a leasing agreement

• For a property whose RET is calculated based on its original value, no matter how the calculation is treated from an accounting perspective, the original value shall contain the land price, which includes the amount paid to obtain the land use right, the cost of land development, etc. If a property’s building area to occupied land area ratio is lower than 0.5, the land area shall be counted twice of the building area when the land value is calculated

The circular took effect on December 21, 2010.

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