According to Shanghai Live last night, there are new regulations being put into effect that require a tax of 5% to be levied on all home rentals/leases. This is not just for expats, but for locals as well. It is the responsibility of agents to register rentals/leases at the tax office. If agents don't comply they can be fined 10,000rmb (perhaps as high as 40,000rmb, I can't quite remember). It looks like Shanghai landlord's free ride is about to end, but they will no doubt find some way to get away with some of their income tax free.

Shanghai Expat's resident agent helping Expats for years now, Adrienne, was interviewed for the spot and it'd be nice if she would post some more information here as their is nothing currently available on the net.

A couple questions I have are:
My landlord lives in another province, so will my flat be affected?
What if a landlord refuses to pay, can the leaser get into hot water?
Also, I drew up my own contract without an agent, so will the government even know that they should be collecting tax from my landlord. (I am registered with the local police and they have a copy of my lease, so the info is available to them if they look for it.)

No doubt the recent census that took place asking if you 'owned or rented' has opened the eyes of tax officials to the windfall in rental taxes they are likely to receive.

****! I have a hard enough time paying the rent I now pay.

This 5%--is this monthly? annually? Is this within Shanghai only? Or nation-wide?

5% monthly or annually, is still 5%. I think it is just in Shanghai.

It has always been the case that this was to be payed. (In other-words, 99% of landlords have been guilty of tax evasion) What's changing is that they are now going to enforce it and make Real-Estate companies responsible for the tax registration.

Landlords wont lose any sleep over this.
They just increase the price by 5%.

But, hasnt this always been the case?

^^They may lose sleep over the fact that the gov., through this measure, will soon find out how many homes they have and start taxing their 3rd, 4th, and 5th homes appropriately with property tax in addition to the 5%. The last stats I found on property tax in Shanghai said less than 100 homes were being taxed a few months back (many landlords have already raised rent on the pretense of having to pay this tax, but I bet 99% of them haven't paid a cent!)

The way I understand it Shanghai has a flat rate 5% tax on rental income whilst other areas calculate it differently. It's been that way for over 10 years but enforcement is pretty lax. A little while ago the government announced that it was going to start a crackdown on expats and government officials who evade taxes. Given how far in debt the local authorities are it might be that this time the crackdown might actually ocurr....but it's unlikely!

i think the tax relates to where the property is rather than where the landlord lives. also the issue is between the authorities and your landlord so I don't think you are at risk if the landlord doesn't pay.

Where did you see the stats about the 100 homes? that sounds interesting.

TaxBeagle wrote:The way I understand it Shanghai has a flat rate 5% tax on rental income whilst other areas calculate it differently. It's been that way for over 10 years but enforcement is pretty lax. A little while ago the government announced that it was going to start a crackdown on expats and government officials who evade taxes. Given how far in debt the local authorities are it might be that this time the crackdown might actually ocurr....but it's unlikely!

i think the tax relates to where the property is rather than where the landlord lives. also the issue is between the authorities and your landlord so I don't think you are at risk if the landlord doesn't pay.

Even if the landlord doesn't pay, more than likely renters will be hit regardless, along with the usual bullfeces excuses.

I have a contract for a couple of years--I certainly hope that my rent is not increased. I do think that there is nothing in it about unexpected government regulation changes-- I will have to check. Is there anyway I can fight this, if the landlord tries to pass this on to me??

If not, then the options are looking a bit bleak.

ATP wrote:

I have a contract for a couple of years--I certainly hope that my rent is not increased. I do think that there is nothing in it about unexpected government regulation changes-- I will have to check. Is there anyway I can fight this, if the landlord tries to pass this on to me??

If not, then the options are looking a bit bleak.

I think you're in a very strong position! This isn't a new tax so if the landlord tries to raise your rent simply ask him why he wasn't paying the tax before. If he persists, then tell him that you'll need to just check with the SAT (State Administration of Taxation) first as to what the situation is. The prospect of having to pay back-taxes for all those years, not to mention possible criminal prosecution, will send him scurrying away!

TaxBeagle wrote:

ATP wrote:

I have a contract for a couple of years--I certainly hope that my rent is not increased. I do think that there is nothing in it about unexpected government regulation changes-- I will have to check. Is there anyway I can fight this, if the landlord tries to pass this on to me??

If not, then the options are looking a bit bleak.

I think you're in a very strong position! This isn't a new tax so if the landlord tries to raise your rent simply ask him why he wasn't paying the tax before. If he persists, then tell him that you'll need to just check with the SAT (State Administration of Taxation) first as to what the situation is. The prospect of having to pay back-taxes for all those years, not to mention possible criminal prosecution, will send him scurrying away!

Sounds almost too good to be true. But, you might be onto something here. Then again, you know how weasily they are about making up bullfeces stories to justify a new _______________ (add in relevant, phantom cost) fee

TaxBeagle wrote:The way I understand it Shanghai has a flat rate 5% tax on rental income whilst other areas calculate it differently. It's been that way for over 10 years but enforcement is pretty lax. A little while ago the government announced that it was going to start a crackdown on expats and government officials who evade taxes. Given how far in debt the local authorities are it might be that this time the crackdown might actually ocurr....but it's unlikely!

I'm waiting for Adrienne to post. She was interviewed by the news on this. What's coming is that the real estate agents are responsible for insuring that leases are registered with the tax office. Also this applies to all rentals, not just to expats.

i think the tax relates to where the property is rather than where the landlord lives. also the issue is between the authorities and your landlord so I don't think you are at risk if the landlord doesn't pay.

Where did you see the stats about the 100 homes? that sounds interesting.

I tried to find the stats... Now I think it was on ICS Shanghai Live that I heard that number. It was earlier in the year when the property tax was announced.

In the end, I'm sure it is the renters that will foot the bill.

KopyKatKiller wrote:I'm waiting for Adrienne to post. She was interviewed by the news on this. What's coming is that the real estate agents are responsible for insuring that leases are registered with the tax office. Also this applies to all rentals, not just to expats.

Sorry, i wasn't trying to suggest that it might be limited to expats but rather that the govt seems to be cracking down on different classes of tax evaders (expats, officials, businessmen and now landlords)...or at least they say they are.

Placing the burden of registration on agents is interesting, I see what you mean. I bet the agents aren't happy about that!

Personally I think the gov. should seize all the homes which have been rented without taxes paid. That would collapse the housing price bubble pretty quickly.

how would they know if the flat is rented or not? how would the transaction centre even know which agent is involved in which rental case??

also why would the transaction centre even be bothered to collect the tax? there is no economic incentive for them.

to me this is just another 'for show' regulation. something akin to horning and also the mooncake tax. if anything it will only push rental even higher!

KopyKatKiller wrote:In the end, I'm sure it is the renters that will foot the bill.

I already had the landlord ask me to foot the bill, our agreed upon rate on the contract + taxes when he gets the bill. That being said, I'm getting a fairly decent rate at the complex.

wuyee wrote:how would they know if the flat is rented or not?

That's simple enough. People who live in Shanghai whether they be Chinese or not, have to register as living here. in the past a lease was all that was required to register, but many household registration centers are now requiring a copy of the deed as well. In the past I often wondered why the government didn't simply use the housing register to determine who was making money and avoiding tax from letting their flats, and now they've seemed to figure it out too.(Admittedly, a large number of non-locals living here do not register, but with health benefits being extended to registered non-locals and requirements of having resided in the city for a number of years in order to purchase property, more Chinese people will be registering in the future)

wuyee wrote: how would the transaction centre even know which agent is involved in which rental case??

Transaction centers, aka real-estate offices, pay on commission. Knowing who makes what agreements is vital to how they do business.

wuyee wrote:also why would the transaction centre even be bothered to collect the tax? there is no economic incentive for them.

They are not collecting the tax, they are passing on information. Fines starting at 10,00rmb for failure to inform the tax office may be classified as a "financial incentive".

wuyee wrote:to me this is just another 'for show' regulation. something akin to horning and also the mooncake tax. if anything it will only push rental even higher!

Maybe it is for "show", but maybe not. There is quite a huge tax profit there for the gov if they go through with the enforcement.

I believe the last census is now being used to estimate the number of renters in this city and it was this that caused the gov. to go ahead with new enforcement regulations. The measures put in place to curb housing speculation, to limit ownership, and to limit tax free floorspace to 60 sq meters per person are also opening the eyes of officials as to how much of this city's real-estate is being rented without tax being payed.

well ... the landlord can still just pass along the tax, right??

KopyKatKiller wrote:

wuyee wrote:how would they know if the flat is rented or not?

That's simple enough. People who live in Shanghai whether they be Chinese or not, have to register as living here. in the past a lease was all that was required to register, but many household registration centers are now requiring a copy of the deed as well. In the past I often wondered why the government didn't simply use the housing register to determine who was making money and avoiding tax from letting their flats, and now they've seemed to figure it out too.(Admittedly, a large number of non-locals living here do not register, but with health benefits being extended to registered non-locals and requirements of having resided in the city for a number of years in order to purchase property, more Chinese people will be registering in the future)

wuyee wrote: how would the transaction centre even know which agent is involved in which rental case??

Transaction centers, aka real-estate offices, pay on commission. Knowing who makes what agreements is vital to how they do business.

wuyee wrote:also why would the transaction centre even be bothered to collect the tax? there is no economic incentive for them.

They are not collecting the tax, they are passing on information. Fines starting at 10,00rmb for failure to inform the tax office may be classified as a "financial incentive".

wuyee wrote:to me this is just another 'for show' regulation. something akin to horning and also the mooncake tax. if anything it will only push rental even higher!

Maybe it is for "show", but maybe not. There is quite a huge tax profit there for the gov if they go through with the enforcement.

I believe the last census is now being used to estimate the number of renters in this city and it was this that caused the gov. to go ahead with new enforcement regulations. The measures put in place to curb housing speculation, to limit ownership, and to limit tax free floorspace to 60 sq meters per person are also opening the eyes of officials as to how much of this city's real-estate is being rented without tax being payed.

think of it. if i rent and no one comes knocking ... who will know i am renting?? the census takers are not officers. u dont need to tell the census officers anything and even then the census taking takes place only once a few yrs.

as for transaction centres people working on commission, i disagree. do u seriously know how many locals that rent actually go to the transaction centre to show the contract? even if i have contract, it doesnt mean that i have to pay the tax. in short tax office is tax office and transaction centre is transaction centre.

^^You are confusing. Eventually the government will know who owns every scrap of real-estate in the city. they'll also know who is renting and who is collecting that rent. The fact that they do't alraedy know this is retarded and a huge loss of revenue. With development coming to an end sooner rather than later (you can only develop land once in most cases and land IS finite), they'll have to so they can get enough revenue to run this place as there will be no mpore fees paid to the gov. from development companies.