Company Relocation and Land Appreciation Tax in China

Company Relocation and Land Appreciation Tax in China

May 23, 2018

Environmental protection is an increasing priority for China’s government. Since 2016, the Central Environmental Inspection Group has been getting serious on heavy polluters – especially in North China – and punishing firms that are rebellious with environmental laws.

Numerous companies in China have been influenced by this campaign, either directly or indirectly. A few businesses may end up in a hard situation, as they are facing spiraling operational expenses because of interruption of supply chains and more stringent environmental compliance requirements.

Companies in deeply polluting industries, for example, ceramics, papermaking, printing and dyeing, cement, and electroplating, have at times been asked to raise anti-pollution measures production techniques. Inability to do as such inside an assigned time allotment directly prompts penalties from environmental controllers and reduction or suspension of production.

In a few areas, local governments have reclassified the nature of land from industrial land to residential land and have moved highly-polluting plants outside of city centers to guard the residential environment.

In such cases, manufacturing companies may be confronted with production scale cut-downs, or migration to different territories with more moderate local policies, or even hold intends to plans production lines to Southeast Asian nations, for example, Thailand and Vietnam.

From a legal point of view, there are two primary approaches to relocate a business in China:

• Physically move the business to another area and adjust the work address, including an address change inside a similar city or across cities;

• Close the business and open another one, and move all assets, labor, and operations to the new company and location.

Cross city relocation through address modification sometimes may intrude operation of the business, as during the relocation, tax registration with the old city needs to be cancelled and there could be a timeframe before tax registration in the new city is prepared. An alternative method to relocate a business to a new business while keeping with the old company until the point that the better and brighter one is prepared.

At the point when a business is shut, all of its assets should be disposed and all liability should be settled. A few companies that hold land and structures, however, may encounter huge pressure from the taxes incurred by sale of the land and buildings.

Taxes engaged in asset sales during a company closure will usually be value added tax, consumption tax, enterprise income tax, and land appreciation tax. Because of the quick development of real estate industry in China over the previous decade, the value of land and properties has expanded a few times over, which prompts a high land appreciation tax when the properties are sold.

Land appreciation tax is required on paid transfer of state-owned land use rights, structures, and structures on that land. Estimation of land appreciation tax is based on the appreciation amount gained by the taxpayer and should be levied in accordance with a four-step progressive tax rate based on the percentage by which the appreciation amount is in excess of the amount of deducted items.

Land appreciation tax rates in China are: