How to Save on Real Estate Investment Taxes

For those of you who are investing in real estate in China, here's translation of a short article that can help you save on taxes through a mechanism similar to stock ownership transfer vs. out right buying of a building in China.

From "Economics Daily":
Shocking Amount of Taxes Avoided by Foreign Investments Buying Local Buildings Single Transaction Avoids RMB 100 million +

Currently, foreign investments has moved its sights onto second line cities outside of Shanghai and Beijing. The smart foreign investors' tax avoiding tricks continues to showcase in these new locations.

Colliers International Eastern China's director of the board Wong Lin is still full of reminisces today for that wonderful transaction earlier this year. This is because under her direction, Singapore's ---- Group in under 3 short months transferred the ownership of their Xing Mao Building to Italy ---- Group's MGPA Management Company.

Wong Lin saved MGPA Management Company a huge set of fees through the transfer of stock ownership for the purpose of buying/selling business assets and avoided a whole series of real estate taxes.

"MGPA Management Company paid RMB 800 million to buy the Xing Mao Real Esate Development Company Ltd's (a subsidiary of the Singapore's ---- Group) 95% stock ownership, the additional 5% stock is owned by Shanghai Yong Ye Group." Wong Lin told <>.

Shocking Amount of Taxes Avoided

A series of tax laws provided obstacles for foreign investors who are buying businesses. How the taxes can be avoided caused them to drain their brains dry.

Xing Mao Building is an office building located in Huai Hai Road commercial district. It is close to Xin Tian Di, a 20-stories office building, usable area of 32,200 square meters above ground and usable area of 11,174 square meters below ground. This building was jointly developed by Singapore's ---- Group and Shanghai Yong Ye Group.

<> was informed, the Xing Mao Building transaction started introductions in September of 2004, and formally signed the RMB 800 Million transaction on Janurary 25, 2005.

Collier International's opinion is, if MGPA Management Company bought the Xing Mao Building directly they would have had to pay very high taxes.

Before Xing Mao Building was sold, Singapore ---- Group's worth for that piece of the business was around RMB 500 Million. This transaction's price being RMB 800 Million, raised the business valuation RMB 300 Million.

The taxes that would have needed to be paid would've included: Contract taxes ( 500 Million original price * 0.05%) = 250,000, Real Estate taxes (800 M (selling price) * 80% * 1.2% * 3 (# of years)) = 23,040,000, Business Tax (500 M (original price) * 5%) = 25,000,000, Profit Tax (300 M * 33%) = 99,000,000, River management fee = (Business Tax 25,000,000) * 0.5% = 125,000, Total Taxes = RMB 147,415,000.

But through stock ownership transfer, the total taxes paid include: Business Tax = 800 M * 5% = 40,000,000, additional tax (700 M * 0.5%) = 3,500,000, Contract taxes = 700 M * 0.0003% = 2100, Total Taxes = RMB 43,502,100.

The two ways of buying differ in RMB 103,912,900 in taxes. That means, Colliers International in this transaction helped MGPA Management Company save a huge amount of money.