[Direct answer]Generally, individuals transferring apartments are required to pay land value-added tax, while only the transfer of housing is temporarily exempted from taxation. Taxpayers are units and individuals who transfer the right to use state-owned land, the buildings on it, and their attachments and obtain income from such transactions. The tax authorities temporarily exempt individuals from land value-added tax on the sale of housing, but apartments are often located in commercial or office areas and registered for use as offices or commercial properties, which do not fall under the category of housing and therefore cannot apply for the tax exemption. For those who can provide deduction vouchers, the tax is levied according to the four-tier progressive tax rate of 30% to 60% of the added value; for those who cannot provide vouchers or whose declared prices are obviously too low, the tax may be levied at a fixed rate. In Beijing, non-residential properties transferred by individuals are usually evaluated first to determine the amount of deductible items.

I. Problem Background and Typical Scenarios

Land appreciation tax is an easily overlooked tax type, as residential transactions have long enjoyed temporary exemptions. Many people only encounter it for the first time when selling commercial apartments. Its tax calculation logic differs from that of value-added tax and personal income tax: it is not levied on the transaction amount, but on the appreciation value after deducting statutory deduction items from the transfer income. The higher the appreciation, the higher the tax rate. Deduction items include the amount paid for obtaining land use rights, real estate development costs, development expenses, taxes related to the transfer of real estate, and the appraised value of old houses and buildings. For sellers of second-hand apartments, the main deductible items are the original purchase invoice amount, the deed tax payment certificate, renovation costs, and transfer taxes. If the supporting documents are incomplete, the deductible items cannot be identified, and the tax burden will increase accordingly. When handling non-residential transfer registration in Beijing, the tax window usually requires completing an appraisal or providing certified materials first. If the buyer and seller do not agree on tax responsibilities at the contract signing stage, disputes are likely to arise on the day of the transfer, and the transaction may even fail.

II. Key points of contention

The first controversy is the determination of the nature of the housing. The judgment standard is the planned use and land use, rather than the name of the property or advertising slogans; hotel-style apartments registered as residences can apply for the temporary exemption regulations for personal housing sales, while commercial projects registered as offices or businesses are not applicable. The second controversy is the scope and supporting documents for deductions. The original purchase invoice and deed tax payment receipt are the core documents. Decoration expenses require contracts and invoices, and can usually only be deducted at a certain percentage. Loan interest falls under the category of development expenses, and interest expenses for personal second-hand housing transfers generally cannot be deducted separately. The third controversy is the choice of tax calculation methods. The tax burden difference between actual tax collection and fixed assessment may be significant. When taxpayers cannot provide deduction supporting documents, tax authorities will initiate fixed assessment. Taxpayers should actively submit materials to strive for actual calculation. The choice between the two should be made during the declaration process, rather than claiming after payment.

III. Professional analysis by Hengluo Lawyers

From the practice of handling real estate transactions and tax-related disputes in our firm, land value-added tax disputes are mostly concentrated in two key points: unclear contract provisions and missing supporting documents. At the contract level, second-hand housing sales contracts usually only state that "taxes shall be borne by the buyer" or "each party shall bear their own taxes", but the taxpayer of land value-added tax is the seller. If it is agreed that the buyer shall bear the tax, this is a transfer of expenses between private individuals and does not affect the tax authorities' ability to recover the tax from the seller. Once the buyer reneges on the agreement, the seller still needs to pay the tax first before transferring ownership, and then seek reimbursement separately. At the supporting document level, many homeowners only received receipts when purchasing the property, failed to obtain invoices, or did not sign contracts or request invoices during renovations. As a result, they cannot prove the deductible items when transferring ownership and are forced to accept assessed taxation. A feasible solution is to conduct a pre-audit of the tax burden with the tax authorities before the transaction to estimate the actual and assessed tax amounts; clearly specify the subject responsible for land value-added tax, the calculation method, and dispute resolution in the contract; and conduct a comprehensive review of historical purchase documents, promptly retrieving missing materials from the original developer or archives. The timing of handling tax-related matters often determines whether the transaction can be completed on schedule.

IV. Practical suggestions and legal basis

At the contractual level, the validity of the transfer of apartments, the performance of obligations, and the liability for breach of contract shall be governed by the provisions of Article 595 of the Civil Code of the People's Republic of China (effective January 1, 2021) concerning sales contracts. Where the tax burden is not explicitly stipulated in the contract, the taxpayer shall be determined in accordance with the law. At the taxation level, Article 2 of the Interim Regulations of the People's Republic of China on Land Value Added Tax (amended on January 8, 2011, effective January 1, 1994) stipulates that units and individuals who transfer the right to use state-owned land, buildings and their attachments and obtain income therefrom shall be taxpayers. Article 3 provides that the land value added tax shall be levied in accordance with the taxpayer's added value and the prescribed tax rate. Article 6 specifies the deduction items for calculating the added value, and Article 7 stipulates the four-level progressive tax rate. The Implementing Rules of the Interim Regulations of the People's Republic of China on Land Value Added Tax (effective January 27, 1995) makes specific provisions on deduction items, assessment prices, and assessed collection. Practical suggestions: 1. Before signing the contract, consult with the competent tax authority with the real estate ownership certificate to confirm whether to apply for actual collection or assessed collection, and obtain a written estimate; 2. Completely collect the original purchase invoices, deed tax payment certificates, decoration contracts and invoices, and transfer-related tax payment certificates; 3. Clearly stipulate in the contract who shall bear the land value added tax, how it shall be calculated, and how to handle if the tax burden exceeds the agreed proportion; 4. Handle the transfer and tax payment simultaneously to avoid the seller losing negotiating leverage if taxation is imposed after the transfer; 5. For houses acquired through inheritance or gift, confirm the original value determination method in advance. For the overall process of non-residential transactions, please refer to our firm's guidelines.Legal services for real estate transactions and construction projectsThe tax and transfer fees section of the page.

5. Henglu Law Firm's Reminder

Three tips. First, don't believe the claim that "there's no need to pay land value-added tax when transferring an apartment." The temporary exemption for residential properties is a specific policy, and commercial projects are not included. If you rely on verbal promises and waive tax provisions in the contract, the tax burden will ultimately be borne by the statutory taxpayers. Second, don't use "dual contracts" to lower the transaction price. If the declared price is significantly lower without reasonable justification, the tax authorities may reassess it. Not only will this not save taxes, but it may also be deemed tax evasion, leading to tax arrears, late payment penalties, and fines. In serious cases, the case may be referred for further handling. Third, don't overlook the determination of the original value in the inheritance and gift process. For houses obtained through inheritance or gift, the rules for determining the original value are different from those for sales. The deduction amount at the time of transfer may be much lower than expected, so it's necessary to calculate it in advance. Tax-related matters are highly specialized. It is recommended to complete a tax burden assessment before signing the contract and then decide on the offer price and transaction structure.

VI. Frequently Asked Questions

Q1: Does the transfer of a second-hand apartment by an individual fall within the scope of taxation of the land value-added tax?

It does. Article 2 of the "Interim Regulations of the People's Republic of China on Land Value-added Tax" (amended on January 8, 2011, and implemented on January 1, 1994) stipulates that units and individuals who transfer the right to use state-owned land, buildings and their attachments on the land and obtain income therefrom shall be the taxpayers of land value-added tax. Second-hand apartments are located on state-owned land, and their transfer and income generation meet the taxation requirements. The temporary exemption from land value-added tax for individuals selling housing is a specific preferential policy, which is applicable to housing only, not to commercial apartments. Therefore, individuals selling apartments registered for office or commercial use shall declare and pay land value-added tax, and complete the tax payment or provide a tax payment certificate before handling the transfer registration.

Q2: How is the apartment land value-added tax calculated according to the four-level progressive tax rate based on the increase in value?

First, calculate the value-added amount, and then apply the tax rate. The value-added amount is equal to the transfer income minus the amount of deductible items, which include the amount paid for obtaining the land use right, development costs, development expenses, taxes related to the transfer, and the appraised price of the old house. The tax rate is divided into four brackets: for the portion of the value-added amount not exceeding 50% of the amount of deductible items, the tax rate is 30%; for the portion exceeding 50% but not exceeding 100%, the tax rate is 40%; for the portion exceeding 100% but not exceeding 200%, the tax rate is 50%; and for the portion exceeding 200%, the tax rate is 60%. The quick calculation method is to multiply the value-added amount by the applicable tax rate and subtract the amount of deductible items multiplied by the quick deduction coefficient, which are zero, 5%, 15%, and 35% respectively.

Q3: Can the decoration fees and loan interest be included in the deduction items when transferring an apartment?

The decoration expenses can be partially deducted when meeting the conditions, but the loan interest generally cannot be deducted separately on a real basis. The decoration expenses require the provision of a decoration contract and invoices, and can usually only be deducted within a certain percentage of the purchase price, with the specific percentage determined by the local tax authorities' implementation guidelines; it's difficult to identify the self-installed parts without a contract or invoices. The loan interest in real estate development projects belongs to development expenses, and the deduction is calculated according to a certain percentage of the total amount paid for the land use rights and the development costs. The rules on deducting interest on a real basis generally do not apply to individuals transferring second-hand non-residential properties. To increase the deduction amount, it is necessary to retain the original purchase invoices, the tax payment certificates for the deed tax, the decoration contracts and invoices, and the tax payment certificates for the transfer. These documents should be actively submitted during the declaration process.

Q4: If an apartment held for more than two years is resold, can the land value-added tax be reduced or exempted?

There are no tax reductions or exemptions based on the length of ownership. The VAT exemption for housing after two years of ownership applies to residential properties, and the temporary exemption from land value-added tax also only applies to individuals selling residential properties. Commercial apartments do not receive tax reductions or exemptions based on the length of ownership, whether it's two years or five years. The current regulations mainly include the following situations that can enjoy tax reductions or exemptions: taxpayers who build and sell ordinary standard residential properties, where the increase in value does not exceed 20% of the amount of deductible items; and real estate that is legally expropriated or recovered for national construction needs. Personal transfers of apartments do not fall into any of the above situations. Therefore, the length of ownership only affects the calculation of VAT and personal income tax, and does not change the tax obligation for land value-added tax. Before reselling the property, the tax burden should still be calculated in advance.

Q5: If the parties sign two different contracts with different prices for the same apartment, what are the risks of land value-added tax involved?

The risks are high and it's difficult to resolve them through civil agreements. If the declared price is significantly lower than the market price without a legitimate reason, the tax authorities have the right to determine the tax basis by referring to the appraised price, and the under-declared portion cannot reduce the tax burden. At the same time, signing "yin-yang contracts" to evade taxes may be considered tax evasion, resulting in the recovery of taxes, the imposition of late payment penalties, and fines. If the amount and proportion are large, the case may be referred for criminal prosecution. At the civil level, the low-price version of the "yin-yang contract" is used for online signing, while the high-price version is used for actual performance. Once one party reneges on the contract, the other party may have difficulty proving the actual transaction price, and both the price and the breach of contract terms may fall through. It is recommended to sign and declare according to the actual transaction price, and to resolve the tax burden differences through price negotiations rather than through contract splitting.

The above questions and answers are mainly based on the judicial practice in Beijing. There may be differences in the adjudication standards in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the necessary evidence, to avoid missing the statutory time limit.Legal services for the purchase and sale of real estate·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.