2-year VAT exemption on residential property sales on real estate crisis
An economic downturn and ageing pollution has put huge pressures on China’s dominant real estate sector. This is threatening domestic economic stability and wider global markets.
To support the market, from 1 December 2024, individuals who sell homes that have been owned for two years or more will be exempt from VAT in cities such as Beijing, Shanghai, Guangzhou and Shenzhen. The government also reduced the minimum pre-collection rate for land VAT by 0.5 percentage points.
Other measures include exemption from land appreciation tax.
China has been regularly turning to VAT to support the economy as its economy slows. This include lower VAT for small businesses since 2023. And VAT credits accelerated since 2022.
Overview of Chinese VAT System
China’s Value-Added Tax (VAT) is a consumption tax applied to goods, services, and imports. It is levied at multiple stages of production and distribution, with businesses able to offset input VAT (on purchases) against output VAT (on sales). Administered by the State Taxation Administration, VAT is a crucial revenue source for China.
Rates and Categories
China has four VAT rates:
- 13%: Standard rate for most goods and services.
- 9%: Reduced rate for items like agricultural products and certain utility services.
- 6%: Applicable to services in sectors such as finance, consulting, and modern services.
- 0%: For exports, which are zero-rated to encourage trade competitiveness.
Small-scale taxpayers face a simplified regime with a lower 3% VAT rate but cannot claim input tax credits.
Special Features
- Imports are subject to VAT to level the playing field with domestic goods.
- Certain exemptions apply, such as for agricultural inputs, medical equipment, and cross-border services.
- The VAT reform in 2016 replaced the Business Tax, consolidating indirect taxation and promoting fairness.
China’s VAT system emphasises efficiency and economic growth, with its refund and rebate mechanisms supporting exports and industrial development.
