Lawyer prepares the sale and purchase agreement and conducts due diligence on the property and the parties
Agency: Lawyer’s office
Parties must prepare a sale and purchase agreement to transfer property. It is a common practice to hire a Lawyer to advice, conduct due diligence and prepare the sale and purchase agreement. Lawyer’s would normally download the standard templates offered by the Shanghai Municipal Real Estate Registration Bureau, amending some clauses to as needed for each specific case. Once the parties have properly identified the property, and verified all possible encumbrances that are attached to the property or the parties, the sale and purchase agreement is signed. The sale and purchase agreement must be submitted to the Real Estate Centers to proceed with the registration and obtain a new title certificate.
During the due diligence phase, is it common for lawyers to:
- Verify whether the property is free of encumbrances at the Real Estate Centers of the Shanghai Municipal Real Estate Registration Bureau. The time to complete this task depends on the complexity of the property object to the transaction, but generally it can be completed within a day
- Verify the zoning regulations affecting the property. This is normally checked online as it is public information at http://www.shgtj.gov.cn/ghsp/
- Verify that the property is free of any outstanding debts with the tax authority and of any debts with utilities (electricity, water etc.). This is normally checked by reviewing the last tax receipts paid by the seller.
- Verify whether any of the parties is subject or has been subject to an insolvency proceeding. If the case was accepted by court, the information will be on the website, which includes if the business license was revoked or if the business is deregistered: http://pccz.court.gov.cn/pcajxxw/index/xxwsy.
Time and cost: 4 days, CNY 48,318.25 (Lawyer fees: Between 1% and 2% of the property value)
Parties file the application to register the property transfer and pay registration fee at the Real Estate Registry
Agency: Real Estate Registry
Private ownership of land is not permitted in China; all land is subject to either State ownership or collective ownership. However, a private party is entitled to obtain the right to use the land. Regarding the State-owned land, there are two types of land use rights, the “granted land use right” and the “allocated land use right”. The difference is that the granted land use right is limited in time against payment, whereas the allocated land use right is usually given for free with no time limit, but for specific purposes only. A private party also may transfer to another private party the granted land use right. The allocated land use right cannot be commercially transferable before being converted into granted land use right. In this case, the land is used for commercial purposes. Usually land for commercial use is owned by the State, and the relevant land use right is the State-owned land use right. As to the term of the land use right in this case the buyer, who will use the land for commercial purposes, will only get 40 years as the initial term (as maximum unless it extends the granted land use rights at the end of the 40-year period by paying to the State the additional land price) minus the period from the granting date from the State to the date of the transfer to ABC. If the land is zoned for industrial use or warehousing use rather than for commercial use, the maximum land tenure should be 50 years.
The sale and purchase agreement needs to be printed at designated printers. Such printers are only available at licensed real estate brokers and the property registry offices. Property Ownership Certificate and Land Use Right Certificate are combined into one certificate in Shanghai, which is called “Real Estate Title Certificate”.
The officials in real estate registry will review the contract to make sure the price is generally in line with the market price, and the parties shall pay the taxes as mentioned above at the tax bureau window (the local tax authorities might have a window in most real estate registry offices in Shanghai) based on the reviewed purchase price.
For online registration of contract : Measures on the Online Registration of Shanghai Municipality Existing Real Estate Broker Contract and Transfer Contract (http://www.fangdi.com.cn/News/ZCFG/200694164606.htm)
The documentation shall include:
The seller and the buyer should submit one original real estate sales and purchase contract (duly signed) and a writing representation of the seller and buyer regarding the title transfer. There is no standard form of the contract (except for newly constructed commercial residential properties) nor is the participation of a lawyer/notary required.
The seller should submit the below documents:
- The original copy of the Property Ownership Certificate and Land Use Right Certificate “Real Estate Title Certificate” (already in possession of the seller);
- The original copy of the Business License or Organization Code Certificate;
- The original copy of the Board resolution approving the sales of the real estate;
- District Branch-dedicated Form for proof of legal representative’s authority, and photocopy of the identification card (or passport) of the legal representative; and
- Photocopy of the identification card of the individual authorized to handle the actual Procedures, and the original copy of Power of Attorney.
The buyer should submit the below documents:
- Real Estate Ownership Registration Form;
- The original copy of the Business License or Organization Code Certificate;
- The original copy of the Board resolution approving the purchase of the real estate;
- District Branch-dedicated Form for proof of legal representative’s authority, and photocopy of the identification card (or passport) of the legal representative; And
- Photocopy of the identification card of the individual authorized to handle the actual Procedures, and the original copy of Power of Attorney.
The Ministry of Finance and State Development and Reform Commission issued a notice, effective from May 1st 2008, to standardize the registration fees for real estate property. The registration fee is set at CNY 80 for one piece of residential housing and CNY 550 for one unit of non-residential building.
The transaction handling fee of 0.5% of the transaction has been removed by Notice of the Ministry of Finance and the National Development and Reform Commission on the Relevant Policies on Suspending, Exempting and Adjusting Certain Administrative Charges of April 12, 2018.
Time and cost: 4 days, CNY 550
Parties pay taxes
Agency: Local Tax Authority – Real Estate Registry
Taxes to be paid by the seller and buyer while transferring a property.
- Tax to be paid by the buyer:
- deed tax: 3% of property value;
- stamp duty: 0.05% of the property value.
- Tax to be paid by the seller:
- Value added tax: 10% of the difference between the purchase price and the sale price (not counted in cost calculations);
- stamp duty: 0.05% of the property value;
- Additional business tax to be paid by seller:
- educational surtax, to be 3% of the levied business tax (not counted in cost calculations);
- local education surcharge: 2% of the levied business tax (not counted in cost calculations);
- land appreciation tax: 30% to 60% (as the case may be) of the added-value of the land, [or 3% of property value subject to the tax office’s instruction in practice] (not counted in cost calculations);
- urban maintenance and construction tax to be 1% to 7% of the levied business tax (not counted in cost calculations)
- construction and installation business tax: 3% on the transfer price (not counted in cost calculations);
- river maintenance fee: 1% of the levied business tax (not counted in cost calculations).
- enterprise income tax: 25% of the profit from the selling property (which may be levied on the financial year end).
The legislation for the major taxes to be paid by the seller and buyer can be found here:
- For Land Appreciation tax : Interim Regulations of the People’s Republic of China on Land Appreciation Tax (http://www.mlr.gov.cn/zwgk/flfg/tdglflfg/200601/t20060119_642173.htm);
- For business tax : Interim Regulations of the People’s Republic of China on Business Tax (http://www.gov.cn/zwgk/2008-11/14/content_1149510.htm);
- For Urban Maintenance Construction Tax : Interim Regulations of the People’s Republic of China on Urban Maintenance Construction Tax (http://www.gov.cn/banshi/2005-08/19/content_24817.htm)
- For educational surtax : Interim Provisions on Collecting the Educational Surtax (http://www.gov.cn/gongbao/content/2011/content_1860811.htm)
In accordance with the Interim Administrative Measures for the Collection of Value-added Tax on Real Estate Transfers by Taxpayers (effective from 1 May 2016) the Business tax (5%) was replaced with the Value added tax (5% for property in business areas and 11% for property in rural areas).
Time and cost: 1 day, CNY 99,857.72 (Deed tax: 3% of property value to be paid by the buyer; Stamp duty: 0.05% of property value to be paid by buyer and seller separately (total 0.1%))
Parties obtain new title certificate
Agency: Real Estate Registry
After paying the corresponding taxes, along with the receipt, the buyer obtains the new Real Estate Title Certificate. In Shanghai the former Property Ownership Certificate and the Land Use Right Certificate have been combined into one certificate, the Real Estate Title Certificate. The title transfer Procedure will be complete upon the issuance of the new Real Estate Title Certificate.
Time and cost: 1 day, no charge
