Circular of the State Administration of Taxation on Imposing Business Income Tax in Real Estate Development
Circular of the State Administration of Taxation on Imposing Business Income Tax in Real Estate Development
Circular of the State Administration of Taxation on Imposing Business Income Tax in Real Estate Development
Guo Shui Fa [2006] No. 31
March 6, 2006
To states tax bureaus, local tax bureaus of all provinces, autonomous region, municipalities under the Central Government, cities specifically designated in the state plan:
In order to strengthen and standardize the administration on business income tax in the enterprises concerning real estate development, in accordance with Provisional Regulations of the People's Republic of China on Enterprise Income Tax and its enforcement regulations, laws and provisions related to Law of The People's Republic of China concerning the Administration of Tax Collection Order, as well as the operational characteristics of the enterprises of real estate development, business income tax concerning real estate development enterprises is hereby given as follows:
I. Tax handling of uncompleted development products
Where such development products as residence developed and constructed by development enterprises, commercial occupancy as well as other buildings, attaching, supporting facilities and etc. are sold by means of advance sale prior to its completion, its presale income shall, in accordance with assessable gross profit, work out quarterly( or monthly) gross profit volume of the current period and subsequently the taxable income after having deducted relevant period charge, sales tax and adjunct account and then be adjusted after the assessable cost of development products was calculated.
1. The item of economically affordable housing shall comply with the provisions such as Notice of the Ministry of Construction, State Development and Reform Commission, Ministry of Natural Resources, People's Bank of China on Printing and Distributing Measures for Economic Affordable Houses (Jian Zhu Fang (2004) No.77) and etc, the assessable gross profit margin rate of the presale income shall be no less than 3%. The real estate development shall, when applying for initial tax returns filing, attach the certificate documents of the related departments as well as other relevant certificate document. For those who do not comply with the provisions or fail to submit the certified documents of the related departments as well as other related certificate documents, they shall calculate the business income tax in accordance with the provisions about sale of non-economic affordable houses.
2.The estimated assessable gross profit margin rate of non-economic affordable houses shall be determined in accordance with the following provisions:
(1) Where the development item is located in the urban and suburban areas of provinces, autonomous regions, and cities specifically designated in the state plan, its estimated assessable gross profit margin rate shall be not less than 20%.
(2) Where the development item is located in prefecture or its suburban region, its estimated assessable gross profit margin rate shall be not less than 15%.
(3) Where the development item is located in other areas, its estimated assessable gross profit margin rate shall be not less than 10%.
II. Tax affairs treatment about completed development products
1. Those who comply with any of the following circumstances shall be deemed as having completed the development product:
(1) The certificate of project completion of the development product or (cost objective) has been submitted to the management department of real estate for record
(2) Developments that have been put into service (cost objects)
(3) The development product or (cost objective) has obtained the certificate of initial property right.
2. After the completion of development product, development enterprises shall, in accordance with the nature and means of production of its income and means of sale as well as the principle of income confirmation, confirm rationally the presale as real sale income, and simultaneously carry forward the corresponding assessable cost and work out the gross profit of the real sale income hereof. The difference between gross profit margin of its real sale and the estimated gross profit margin shall be calculated in the tax payable of the project completion year. Where those completed development products yet fail to calculate the assessable cost in the project completion year in accordance with the related provisions, or fail to adjust the taxpaying difference between the real sale income of real sale and gross profit margin, the tax authorities is entitled to confirm or verify its assessable cost and thereby conduct taxpaying adjustment and handle it in accordance with Law of The People's Republic of China concerning The Administration of Tax Collection Order.
3. After the completion of product development, development enterprises shall, prior to the annual taxpaying declaration, submit the status quo of the project completion to the taxation authorities in responsible. The development enterprises shall, when declaring annual taxpaying, submit the tax appraisal report issued by related departments concerning adjustment of difference between gross profit margin of its real sale and the presale gross profit margin as well as other related documents required by the tax authorities.
The aforesaid tax appraisal report concerning difference adjustment includes: geographical locations and survey of the development item, floor space, development usage, initial development time, completion time, salable areas and sold areas, presale income and gross profit, real sale income and gross profit margin, development cost and real sale cost and etc.
4. The income of development product covers all the purchase price in the process of product development, including cash, cash equivalent as well as other economic interest. Where various fund, expenses and adjunct account charged by the development enterprise in the name of relevant departments, units and enterprises are included in cost of development product or invoice issued by development enterprise, they shall be confirmed as sale income; otherwise, they may be deemed funds to collect or remit for management.
5. The sale income of development product shall be confirmed in accordance with the following provisions:
(1) Where the development products are sold by means of one-off collection, the income shall be confirmed on the very day when real payment or price certificate (right) are fulfilled.
(2) Where the development products are sold by means of installment collection, the income shall be confirmed by means of the settled price and cash day.
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