The scope of the PRC Land Appreciation Tax includes the gains arising from the transfer of land use right and the buildings that are constructed on the land. Land appreciation tax is levied from 30% to 60% on gain on disposal of landed properties with reference to the percentage of appreciated value over the deductible amount. For completed properties, the deductible amount is the sum of purchased price and taxes paid. In the absence of tax invoice for the purchased properties, the land appreciation tax is imposed at 0.5% to 1% of the contract amount.

 Appreciated value as a percentage of the deductible amount Rates I Not exceeding 50% 30% II Exceeding 50% but not exceeding 100% 40% III Exceeding 100% but not exceeding 200% 50% IV Exceeding 200% 60%

 Illustration: Assuming that the selling price of an office premises is say RMB11,000,000 and the cost of purchase including taxes is RMB4,000,000. The appreciation is RMB7,000,000. Calculate the amount of the land appreciation tax.

 Tax brackets Appreciated value Taxable amount Tax rate I 4000000 x 50% = 2000000; less than 2m 2 million 30% 0.6 million II 4000000 x 100% = 4000000; 2m to 4m 2 million 40% 0.8 million III 4000000 x 200% = 8000000; 4m to 8m 3 million 50% 1.5 million IV Over 8m 60% 7 million 2.9 million

The tax rates range from 30% to 60%, but the highest appreciated portion only reaches 50% (300 in this example).

 Simple calculation method: The land appreciation tax rules provide for a simple calculation method. There is an applicable quick calculation coefficient associated with each tax rate. The quick calculation formula is as follows: tax amount = appreciation value x applicable tax rate - amount of deduction x quick calculation coefficient. One can arrive at the same tax amount using the formula: [7,000,000 x 50% - 4,000,000 x 15%] = 2,900,000; where 15% is the quick calculation coefficient corresponding to the 50% tax rate.

 Applicable tax rate Quick calculation coefficient I 30% 0 II 40% 5% III 50% 15% IV 60% 35%