[photopress:real_estate_tax_1.jpg,full,alignright]This is the sort of situation that gives developers an attack of the vapors. They need to take two Aspirin and have a nice lie down before considering the implications.
On April 7, 2008, the State Administration of Taxation issued a circular governing provisional Corporate Income Tax payment issues for real estate developers , which is retrospectively (note that word for it gives one pause) effective from January 1, 2008.
It applies to the following enterprises:
(i) Chinese resident enterprises that are engaged in the real estate development business, including both domestic Chinese enterprises and foreign-invested enterprises; and
(ii) Those enterprises that make monthly or quarterly provisional CIT payments based on actual profits.
[photopress:real_estate_tax_2.jpg,full,alignleft]The provisional CIT payable is the result of multiplying such profit by the CIT rate (standard rate of 25% from January 1, 2008). That may be a little difficult to follow but take it that it does not make the life of a real estate developer any easier.
After the final completion of a project that has been pre-sold, the prepaid CIT will be reconciled with the actual CIT payable, based on the project’s actual profits.
In other words when you have made your profit the tax that can be demanded will be worked out.
For typical real estate projects, the profit rate shall be:
Not lower than 20%, for projects located in provincial capital cities as well as certain cities in special administrative regions and other designated cities.
Not lower than 15%, for projects located in second-tier cities.
Not lower than 10%, for projects located in other areas.
For low cost residential, the profit rate shall not be lower than 3%.