(Source: https://pltfrm.com.cn)
Foreign companies leasing property in China face several tax implications that they need to consider. These implications vary depending on the type of property leased (commercial, industrial, residential, etc.) and the specifics of the lease agreement. Here are the main tax considerations:
- Value-Added Tax (VAT):
- Leasing of property in China is generally subject to VAT. As of my last update, the standard VAT rate for leasing property is 9% for real estate leases, but this rate can change.
- Foreign companies are required to pay VAT on lease payments. The lessor (property owner) typically collects VAT from the lessee (tenant) and remits it to the tax authorities.
- In some cases, VAT invoices (fapiao) are required for the foreign company to deduct the lease expenses in its tax filings.
- Corporate Income Tax (CIT):
- If the foreign company has a permanent establishment in China, the lease expenses can typically be deducted from its taxable income for CIT purposes.
- The ability to deduct lease expenses can depend on the nature of the lease and whether the expenses are considered reasonable and directly related to the income earned.
- Withholding Tax:
- For foreign companies without a permanent establishment in China, payments made to a Chinese lessor may be subject to withholding tax, especially if the lease payments are considered China-sourced income for the lessor.
- The rate and applicability of withholding tax depend on the type of lease and the provisions of any applicable double taxation agreement between China and the foreign company’s home country.
- Stamp Duty:
- Lease agreements in China are subject to stamp duty. The rate is typically low (a small percentage of the rental amount) but varies depending on the type of lease.
- Both the lessor and lessee are generally responsible for stamp duty, and it is usually shared equally between them.
- Land Use Tax and Property Tax:
- Depending on the location and type of property, land use tax or property tax may be applicable. These taxes are usually the responsibility of the property owner, but in some lease agreements, they may be passed on to the tenant.
- Regulatory Compliance:
- Foreign companies must ensure that their lease agreements comply with Chinese property laws and regulations.
- They should also maintain proper documentation and records for tax purposes
- Double Taxation Agreements (DTAs):
- DTAs between China and the foreign company’s home country can impact the tax treatment of lease payments, particularly in the context of withholding taxes.
- Transfer Pricing Considerations:
- If the leasing arrangement is between related parties (e.g., a foreign company leasing from its Chinese subsidiary or affiliate), transfer pricing rules apply. The terms of the lease must be consistent with the arm’s length principle.
- Foreign Exchange Controls:
- China has foreign exchange control regulations that could impact the remittance of lease payments abroad. Foreign companies should ensure compliance with these regulations to avoid penalties.
- Tax Planning and Advice:
- Due to the complexities involved in leasing property in China, especially for foreign entities, it’s advisable to seek professional tax advice. This can help in optimizing tax liabilities and ensuring compliance with local tax laws and regulations.
Foreign companies should carefully consider these tax implications when entering into lease agreements in China. Proper planning and compliance can help avoid unexpected tax costs and legal issues.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
