GuoShuiFa [2001] No.142 December 20, 2001

The state taxation bureaus in all the provinces, autonomous regions, municipalities directly under the Central Government and municipalities separately listed on the State plan, the local taxation bureaus of Guangdong and Hainan Provinces and Shenzhen city:

The following notice, concerning the issues of administering income tax of enterprises with foreign investment and foreign enterprises for their engagement in realty development, is now issued to you in accordance with the relevant provisions of the Law on the Management of Tax Revenue Collection of the People's Republic of China and the Law of Enterprise Income Tax of Enterprises with Foreign Investment and Foreign Enterprises of the People's Republic of China (hereinafter called the Tax Law) to enhance the management of the enterprise income tax of realty enterprises with foreign investment:

1. The enterprise incomes subject to taxation shall be the enterprises' current sales incomes from realty operation with the current corresponding costs, expenditures and losses deducted. In accordance with the Tax Law, the current incomes subject to enterprise income tax shall be calculated on the basis of the following formula:

Taxable amount = taxable incomes x applicable tax rate - withheld income tax for sold houses + current withheld income tax

2. If enterprises sell realties in advance, they shall pay their enterprise income tax, in advance, for their advance incomes from their pre-sold realties in accordance with the Circular of the State Administration of Taxation concerning the Relevant Issues of Collecting Income Tax on the Realty Development of Enterprises with Foreign Investment (GuoShuiFa [1995] No.153).

3. The realty sales of enterprises shall be the date of the issuance of engineering project certificates by Realty Administrations, or the date of the first conveyance of the right of realty use, or the date of the first transfer of realty title. The enterprises shall calculate their annual taxable incomes in accordance with their current realty sales incomes and corresponding expenditures spent from the very start of realty sales.

4. The calculation of realty sales incomes shall be in accordance with the accrual system. Specific calculation shall observe the following principle according to the different marketing ways:

(1) As for sales made in single payments, the dates of the conveyance of the right to use realties or the dates of the issuance of invoices shall be deemed as the realization dates for sales incomes.

(2) As for sales made in installments or advanced payments, the contractual payment dates shall be deemed as the realization dates for sales incomes.

(3) As for sales made in the payments with the right of land use or other properties, the dates of the conveyance of the right to use realties shall be deemed as the realization dates for sales incomes.

(4) As for sales made in the payments with bank mortgage loans, the dates of the transfer of the mortgage loans shall be deemed as the realization dates for sales incomes.

5. The calculation of corresponding expenditures for realty sales shall be in accordance with the principle of the matching of incomes and expenditures. Current expenditures shall be calculated on the basis of current realty areas and the cost and expenditure of salable engineering units that shall be confirmed according to the following formula:

Costs and Expenditures of Salable Engineering Units = Total Costs and Expenditures of Salable Units / Total Salable Areas

Total costs and expenditures include the prophase expenditures, such as those for land use, compensations for pulling down original houses and relocating original households, connecting facilities, ground leveling, reconnaissance, design, constructional installation, basic establishment, accessorial establishment including public equipments, planting trees, roads, and managerial, financial and sales expenditures spent for the development of engineering projects by enterprises. Total salable areas refer to those confirmed by the Certificates of the Salable Areas of Realties issued by the realty mapping departments designated by the State.

6. If some of the expenditures for accessorial establishments including planting trees, and roads are spent after realty sales, they can be calculated in advance at realty sales. At the completion of accessorial establishment construction, the total calculation shall be made. The proportion for advanced amount of accessorial establishment expenditures spent after realty sales may be proposed by enterprises, and carried out accordingly after the obtainment of approvals from responsible taxation administrations.

7. The taxable enterprise incomes from realty rent shall be calculated on the basis of current actual rent with the depreciated fixed assets value of the rented realties and other corresponding expenditures deducted, and then with other business profits added.

If realties are sold after being rented, their depreciated value that has been calculated during the renting periods shall not be deducted as costs or expenditures at the sales of realties.

8. If overseas enterprises enter into contracts with realty development enterprises for the exclusive sales of realties, the exclusive sales shall be deemed as domestic property transfers between the overseas and domestic enterprises. The overseas enterprises' incomes from realty transfer shall be subject to enterprise income tax in accordance with Article 19 of the Tax Law and Article 61 of the Detailed Rules for Implementation of the Tax Law. The above-mentioned business of exclusive sales means that overseas enterprises have entered into exclusive sales contracts with realty development enterprises, conducted procedures for realty title transfer, and used the receipt certificates of the realty development enterprises for realty sales. Other sales on a commission basis and other consignment-in sales, which do not meet the above requirements shall be subject to tax in accordance with the Circular of the State Administration of Taxation concerning the Several Issues in Taxation Disposal of Enterprises with Foreign Investment Engaging in Realty Development (GuoShuiFa [1999] No.242).

9. If investors agreed in contracts to distribute realties among themselves, they shall divide costs and expenditures according to the agreed distribution ways after the summary calculation of expenditures spent during realty constructions (including the expenditures of Chinese investors for their investment with the right of land use), and pay enterprise income tax separately when they sell realties separately.

10. The Methods shall enter into force as of the promulgation of this Notice. The enterprises that have sold realties but not made summary calculation shall abide by this Notice.

Promulgated by The State Administration of Taxation on 2001-12-20