On March 6, 2009, the State Administration of Taxation promulgated the Measures for the Treatment of Enterprise Income Tax ("EIT") on Real Estate Development and Operation (the "Measures"), effective, retroactively, January 1, 2008. The Measures aim to further regulate the collection of EIT for enterprises engaging in the development and operation of real estate by amending and supplementing the Circular on Issues Concerning EIT on Real Estate Development, promulgated in 2006.
The Measures contain the following departures from previous regulations:
- Tax authorities can no longer decide to collect the EIT by assessment in advance. This provision stops the practice that allowed some tax authorities to assess taxes for real estate enterprises upon their establishment;
- The assessable gross profit margin rate for uncompleted projects is decreased by 5%. Real estate enterprises may sell uncompleted projects, and taxable gross profit will be calculated according to the assessable gross profit margin rate. Tax authorities will then adjust such tax after the projects have been completed;
- Where real estate enterprises entrust a foreign entity to sell their projects, they can deduct the commission fees (not exceeding 10% of the sales made by the entrusted entity) when calculating EIT. Previously, such treatment only applied to foreign-invested real estate enterprises; and
- The principles for confirmation of assessable cost objectives and methods of cost allocation have been clarified.
Real estate enterprises still settling their 2008
taxes should do so in accordance with the new Measures.
Copyright ©2009 by Kaye Scholer LLP. All Rights Reserved. This publication is intended as a general guide only. It does not contain a general legal analysis or constitute an opinion of Kaye Scholer LLP or any member of the firm on the legal issues described. It is recommended that readers not rely on this general guide but that professional advice be sought in connection with individual matters.References herein to "Kaye Scholer LLP & Affiliates," "Kaye Scholer," "Kaye Scholer LLP," "the firm" and terms of similar import refer to Kaye Scholer LLP and its affiliates operating in various jurisdictions.
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