Taxes on Immovable Properties and Attached Fixed Assets

When a taxpayer transfers land use rights or sells immovable properties together with fixed assets attached to the land or properties, the sale of goods subject to different types of taxes shall be counted separately, according to the “Announcement on Tax Issues Concerning Transactions in which Land Use Rights or Immovable Properties Are Sold Together with Fixed Assets Attached to the Land or Immovable Properties (SAT Announcement [2011] No.47)” issued by the State Administration of Taxation (SAT) on August 17, 2011.

Announcement No.47 provides that, in a transaction where land use rights or immovable properties are transferred/sold together with fixed assets attached to the land or properties, the sale of value-added taxable goods shall be subject to value-added tax (VAT) in accordance with Article Two of the Circular (caishui[2009] No.9), and the sale of immovable properties shall be subject to business tax (BT) under the item “the sale of immovable properties,” where the BT rate stands at 5 percent.

According to Article Two of Circular No.9, both the status of a taxpayer and the nature of goods impact the VAT treatment to the sale of fixed assets.

VAT general taxpayers shall charge the VAT on the sale of used fixed assets – which fall into the scope of items set out in Article 10 of Interim VAT Provisions (State Council Decree No.538) – at the rate of 2 percent (a 50 percent-discount on the 4 percent VAT rate).

The fixed assets covered in Article 10 are as follows:

• Fixed assets that have been used for non-VATable or VAT-exempt projects, staff welfare or personal consumption
• Fixed assets that have been related to abnormal losses
• Fixed assets that fall into the category of personal consumption goods specified by financial and tax authorities

All of the above-mentioned items cannot have their input VAT deducted from the output VAT, according to State Council Decree No.538.

The VAT of fixed assets not included in Article 10 shall be calculated in accordance with applicable VAT rates (13 percent to 17 percent), however, the VAT of fixed assets that were purchased/made before December 31, 2008 and before the application of the relevant regional pilot schemes on VAT refunds shall be charged at the rate of 2 percent (50 percent discount on the 4 percent VAT rate).

Small-scale taxpayers shall charge the VAT on the sale of used fixed assets at the rate of 2 percent.

Taxpayers shall calculate the sale of VATable goods and immovable properties separately, otherwise, the tax authorities will have the power to make such distinctions on a deemed basis.

The Announcement takes effect on September 1, 2011, and all the related unsettled tax issues shall be treated in accordance with the new document.

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