The equity transaction deemed to be the same as real estate transaction system has been implemented since July 1, 2010, while the real estate and land combined tax system only applies to real estate acquired after January 1, 2015.
The Ministry of Finance recently revised the "Key Points for Income Tax Declaration of Integrated Real Estate and Real Estate" and made adjustments to the relevant regulations that "equity transactions are deemed to be real estate transactions". The Central District Taxation Bureau of the Ministry of Finance stated that this amendment mainly covers two major aspects: the equity value determination method and the scope of application. The purpose is to make the relevant tax burden determination closer to the actual situation and protect the rights and interests of taxpayers.
The Central District State Taxation Bureau explained that in order to prevent shareholders from evading the real estate and land integration tax by actually transferring domestic real estate in the form of equity transfers, in accordance with the provisions of Article 4-4, Paragraph 3 of the Income Tax Act, if an individual or a profit-making enterprise directly or indirectly holds more than half of the equity of an unlisted, unlisted, or non-traded company, and more than 50% of the company's equity value is composed of real estate in my country, it will be regarded as a real estate transaction and must be levied a real estate and land integration tax in accordance with regulations.
Correction 1: The calculation method of equity value is more flexible
The Central District State Taxation Bureau pointed out that in the past, when determining whether more than 50% of the equity value of an invested enterprise came from domestic real estate, the calculation method used the value of domestic real estate as the numerator, and the denominator was determined by the company's net value, including the net value listed in the financial report or the net value on the transaction date after verification by an accountant.
However, considering that there may be a gap between the asset value and the net book value of some enterprises, this amendment adds a new provision. If the value of all the assets of the enterprise can be measured reasonably and objectively, for example, if an accountant is available to check the visa information at the current price, the denominator can be calculated by using the total current price of each asset.
The IRS stated that this move can make the determination of the proportion of real estate value more consistent with the actual asset status and make the calculation results more reasonable.
Amendment 2: Old equity and old buildings can be excluded from application on a proportional basis
The National Taxation Bureau stated that the system of treating equity transactions as real estate transactions has been implemented since July 1, 2010, while the real estate and land combined tax system only applies to real estate acquired after January 1, 2015.
Therefore, this time, taking into account the relevant legislative intent, the regulations are relaxed. If the shareholder sells the old equity acquired before June 30, 2010, the transaction proceeds will be the proportion of the value of the old real estate and land acquired by the company before December 31, 2014, which can exclude the application of the real estate and land integration tax.
As an example from the Central District State Taxation Bureau, if shareholder A holds 70% of the equity of company A, 40% of which is the old equity acquired before June 30, 2010, and 50% of the equity has been sold recently. Calculated based on the first-in, first-out method, the old equity ratio in this transaction is 80%.
Assume that the proceeds from this equity transaction are 1 million yuan, and more than 50% of the equity value of Company A comes from domestic real estate, and 50% of the domestic real estate held by the company belongs to the old real estate acquired before December 31, 2014.
According to the revised regulations, 40% of Shareholder A’s transaction income can be excluded from the application of real estate and land integration tax, and the calculation method is "80% of the old equity ratio × 50% of the old system of real estate and land." In other words, out of the original transaction income of 1 million yuan, only 600,000 yuan is regarded as income from real estate transactions and is included in the calculation of the combined real estate and land tax.
The Central District State Taxation Bureau reminds that this amendment adds provisions such as calculating the value of equity based on the current price of assets, and that old equity transactions can be excluded from the application of the combined real estate and land tax based on the proportion of real estate and land under the old system. These are all measures that are beneficial to taxpayers.
The National Taxation Bureau stated that as long as the case has not yet been determined, the new revised regulations can be applied, and taxpayers can pay more attention to the relevant applicable conditions when filing declarations.
