Deed Tax Law – What It Means for Enterprises in China?

From September 1, 2021, China’s deed tax administrative regulation will be effective into law as authorities have raised it to the national level. The “Deed Law” will solidify the implementation of tax rates for the transfer of land use and ownership rights. As for enterprises in China, deed taxes are applied where there is company restructuring or reorganization including M&A, split, share of transfers, transfer of assets, and more.

Have a look at our previous article on Company Acquisition Considerations in China

Recently, the State Taxation Administration (STA) has extended the deed tax policy to support enterprises or public institutions with restructuring and reorganization. Find out more details about the new deed tax law and the extension of this policy to companies in China.

What pertains to China’s Deed Tax Law?

On August 11, 2020, the Standing Committee of the National People’s Congress announced the elevation of the deed tax regulation into national law. This will amend and upgrade the said regulation that took effect on July 7, 1997.

What is the scope of deed tax?

A deed tax primarily refers to tax payments for the “transfer of the land use rights and housing ownership”. According to the Deed Tax Law, the following acts fall under such transfer:

  • Assignment of land use rights;
  • Transfer, including the sale, gift, and exchange, of land use rights; and
  • Sale, gift, and exchange of houses.

The applicable deed tax rate ranges from 3 percent to 5 percent, however, according to the new law, the local or provincial governments can choose a specific rate within the said tax range.

The transfer of land use rights and house ownership involving capital (equity) investment, debt repayment, allocation and transfer of assets, rewards, and the like will also levy deed tax as prescribed in the new law.

Exemptions to the deed tax charges

Under the Deed Tax Law, there are some circumstances where deed tax charges are not applicable. These consist of the acceptance of land use rights of unclaimed mountains, land, and mudflats for agriculture, forestry, animal husbandry, and fishery and the acceptance of land use rights or house ownership under the following entities or conditions:

  • State organs, public institutions, social organizations, and military units for office, teaching, medical care, research and military facilities;
  • Non-profit schools, medical institutions, and social welfare institutions for office, teaching, medical care, research, elderly care, and assistance;
  • Between a person and his or her spouse during their marriage or heir at law through inheritance; and
  • Foreign embassies, consulates, and representative offices of international organizations in China.

On another note, the State Council can either exempt or reduce the deed tax rates for meeting the demands for house dwellings, post-disaster reconstruction as well as enterprise restructuring or reorganization.

Extension of deed tax policy support for enterprises

As mentioned earlier, deed taxes are also applied to the restructuring or reorganization of both local and foreign enterprises in China. Whereas the transfer of land use rights and real properties may occur for different types of company restructuring or reorganization.

On April 26, 2021, the Ministry of Finance (MOF) and STA extended the DT exemption for different types of reorganization up to three years since its effectivity. Thus, enterprises undertaking reorganizations involving the transfer of land use rights or real properties will have been benefiting from the policy support from January 1, 2021, to December 31, 2023.

Types of deed tax-exempt reorganizations

As per Announcement No. 17 (2021), the following types of reorganizations will be exempt from DT considering that they are eligible under certain conditions:

Enterprise restructuring

While the rights and obligations will be inherited by the transferee (post-restructuring enterprise), original investors (pre-restructuring enterprise) remain unchanged. That is, they retain more than 75 percent of equities after the restructuring. However, the retainable ratio of equities may vary accordingly.

Merger & Split

Post-merger or post-split companies are exempt from DT provided that the original investors are retained after the merger or split.


The deed tax exemption for bankruptcy depends on whether the transferee is a creditor or a non-creditor.

If the transfer is made to creditors including all employees (payment for debt), DT will be exempt. On the other hand, there are two conditions when the transfer is made to a non-creditor.

  • DT exempt – if the non-creditor assumes the employment contracts of all employees of the transferor (bankrupt enterprise) for three years or more.
  • 50% deduction – if the non-creditor assumes the employment contracts with more than 30 percent of employees of the transferor (bankrupt enterprise) for three years or more.
Asset transfer

For the transfer of assets, enterprises can enjoy deed tax exemption if the transferor is the same investor. That is, the transfer occurs between enterprises held by the same investor.

Different transfers by the same investors

  • Parent company and its wholly-owned subsidiaries
  • Between two subsidiaries wholly-owned by a company
  • Between a natural person and his/her sole proprietorship or one-person limited liability company

Moreover, transfer from a parent company to its wholly-owned subsidiaries for capital increase purposes is exempt from deed tax as well.

Debt-to-equity swap

A debt-to-equity swap is one way for a struggling enterprise to continue to operate. Thus, it is a refinancing deal in which a creditor turns the debt into shares whereas the struggling company’s debt is canceled or repaid.

A debt-to-equity swap is exempt from DT given approval from the State Council.

Acquisition by the government

If the transfer involves government acquisition from a pre-restructuring enterprise by means of transfers or investment by the State, deed tax exemption will apply.

Transfer of shares

Where shares transfer occurs, the enterprise will also be exempt from DT given that ownership of the land use rights and real properties is the same or unchanged.

When to pay deed tax?

Enterprises shall file tax returns within ten days upon the occurrence of a tax obligation. Meanwhile, they need to pay DT depending on the time limit that the respective authority has specified. After completing the tax payment procedures, the enterprise taxpayer will obtain a deed tax certificate which will be necessary for ownership registration.

Furthermore, the enterprise can apply for a tax refund if it has already paid the DT for 2021 before the issuance of the deed tax law.


The deed tax law is part of China’s plan for a nationwide property tax reform, which will primarily impact the real estate development as well as the country’s fiscal revenue. In 2019, China’s tax bureau reported that it has earned a total revenue of RMB4.2 trillion from deed taxes beginning 1997 up to 2018.

While enterprises may benefit from the deed tax exemption on restructuring or reorganization, they are also more likely to pay Land VAT considering that there is price or value appreciation since the acquisition of land.

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