New regulations on VAT and property tax take effect on October 1 this year, impacting the way Taiwanese enterprises manage factory lease and property tax planning in Mainland China.

1. VAT (Value-Added Tax)

In the past, for general taxpayers, if the property for lease is acquired before April 30 2016, they may opt to apply a simple tax computation method and pay VAT at 5%. However, for a property for lease acquired after May 1 2016, they will have to adopt a regular computation method and pay VAT at 9%.

From October 1 2021 onwards, if a house leasing agent leases a house to an individual, a simple tax computation method can be applied with a reduced VAT rate from 5% to 1.5%. It means all qualified house leasing agencies can enjoy up to 70% of tax savings in VAT in the new change.

For Taiwanese enterprises in the house leasing industry adopting advance payment, their VAT obligation must start from the day of payment receipt. However, if there is a contract which states the date of payment, then the stipulated day will be the start of the obligation. That is, the agents should stipulate the day of payment receipt after October 1 2021 so that they only have to pay 30% of VAT.

The State Taxation Administration introduced the “Interim Measures for the Administration of Collection of Value-Added Tax on Taxpayers' Provision of Immovable Property Operating Lease Services” as early as March 2016, in which a leasing agent pays VAT with a tax rate of 1.5%. In “Several Opinions of the General Office of the State Council on Accelerating the Cultivation and Development of the Home-Rental Market” in June the same year, it also offers a VAT deduction from 5% to 1.5% for leasing house to individuals. The policy emphasized on tax reduction and exemption for individuals, but now the new rule also benefits leasing agencies

2. Property tax

In the past, leasing agents needed to pay 12% of net rental income as Property Tax. Starting from October 1 2021, if the agents lease housing property to individuals or large-scale leasing companies, the Property Tax will be levied at a reduced rate of 4%, which means all qualified agents can save 2/3 Property Tax.

There are two important points to note. Firstly, Taiwanese enterprises leasing an empty factory to another company does not meet those requirements. They have to lease the property to a leasing agent and then the agent subleases to the company to qualify for tax deduction. Secondly, when an enterprise leases a property, their tax obligation starts from next month. For example, if the leasing period is April 1 2021 to March 31 2026, then they have to pay Property Tax at 12% for the rental from April 1 2021 to September 30 2021 and only starts to pay tax at 4% after October 1 2021.

We would like to stress again that the new policy does not only apply to house leasing agencies. As long as the tenant is an individual or a large-scale leasing company, the Taiwanese enterprise can all benefit from it. In other words, only transactions from “company to company” consisting of a house trusting or leasing can qualify for the tax deduction. If an empty factory is for lease, it will be better if the Taiwanese enterprise partners with a leasing agent than directly leasing to another company so that they can qualify for property tax deduction.

The market still awaits more details from the State Taxation Administration on the definition of specialized or large-scale house leasing companies and the relevant conditions.

News Source：【Economy Daily News 2021/07/12】