China new tax on residential properties

According to the announcement from the Standing Committee of the National People’s Congress made on October 23rd, China will soon implement a pilot plan for levying a real estate tax on residential and non-residential real estate properties.

The plan will be implemented in certain areas, still to be announced, and will last for at least five years. Differently from similar taxes already imposed in cities like Shanghai and Chongqing, the new real estate tax will have a broader scope, hitting both homeowners and land-use rights holders and all types of real estate properties, with the exclusion of rural house sites and the properties built thereon.

China already imposes annually a real estate tax on property, equal to 1.2% of the residual value of the property (or 12% of the rental income, if leased out). Currently, properties owned by individuals for non-business purposes are not subject to real estate tax.

The new measure aims to reduce the speculation that led to the soaring of real estate prices, especially in first-tier cities, and to mitigate the burden for middle-class families when purchasing their apartments.

The policy is ideally in line with recent declarations from the CPC about common prosperity and the building of a more equitable society by expanding the middle class and narrowing the gap between the higher-income and lower-income groups.