Announcement of the State Administration of Taxation on Promulgating the Interim Measures for the Installment Deduction of Real Estate Input Tax

　　Announcement of the State Administration of Taxation [2016] No.15

　　March 31, 2016

　　The State Administration of Taxation has formulated these Interim Measures for the Installment Deduction of Real Estate Input Tax (the "Interim Measures"), which are hereby promulgated with effect as of May 1, 2016.

The Announcement is hereby given.

　　Interim Measures for the Installment Deduction of Real Estate Input Tax

　　Article 1 These Interim Measures are formulated in accordance with the Circular of the Ministry of Finance and the State Administration of Taxation on Comprehensively Promoting the Pilot Program of the Collection of Value-added Tax in Lieu of Business Tax (Cai Shui [2016] No.36) and the current provisions on value-added tax ("VAT").

　　Article 2 Input tax on the real estate acquired by ordinary VAT payers (hereinafter referred to as the "taxpayers") after May 1, 2016 and accounted for as fixed assets under the accounting system as well as their real estate construction in progress after May 1, 2016 shall be deducted from output tax by two yearly installments in accordance with these Interim Measures at a deduction ratio of 60% in the first year and 40% in the second year.
　　The real estate acquired includes the real estate acquired by direct purchase, from donation, as investments in capital, to offset debts, or otherwise.
　　The building, reconstruction, expansion, improvement and decoration of real estate by a taxpayer are real estate in progress.
　　The abovementioned provision on the deduction by two yearly installments shall not apply to input tax on the real estate projects developed by real estate development enterprises on their own, the real estate acquired under finance lease, and temporary buildings or structures built on construction sites.

　　Article 3 If a taxpayer purchases goods and design services or construction services after May 1, 2016 to build, reconstruct, expand, improve or decorate real estate and as a result the original value of the real estate increases by more than 50%, the input tax thereof shall be deducted from the output tax thereof by two yearly installments in accordance with these Interim Measures.
　　The original value of real estate refers to the original purchase price or cost of the real estate upon acquisition.
　　The purchased goods whose input tax shall be deducted from the output tax thereof by two yearly installments refer to the materials and equipment constituting the physical body of real estate, including decorative materials as well as water supply and drainage, heating, hygiene, ventilation, lighting, communication, gas, fire control, central air-conditioning, elevators, electric, and intelligent building equipment and ancillary facilities.

　　Article 4 A taxpayer shall obtain a lawful and valid VAT deduction certificate issued after May 1, 2016 for deducting input tax from output tax in accordance with these Interim Measures.
　　Of the said input tax, 60% shall be deducted from output tax in the period when the deduction certificate is obtained, with the remaining 40%, as the input tax to be deducted, deducted from output tax in the 13th month following the month when the deduction certificate is obtained.

　　Article 5 In case that goods and services whose input taxes are deducted in full when purchased are reused for real estate construction in progress, 40% of the deducted input taxes thereof shall be deducted from input taxes in the period when they are reused and then included in input taxes to be deducted and deducted from output taxes in the 13th month following the month of their reuse.

　　Article 6 When a taxpayer sells the real estate or real estate construction in progress acquired by it, the input tax to be deducted that has not been wholly deducted is allowed to be deducted from output tax in the sales period.

　　Article 7 Where the real estate whose input tax is deducted is subject to any abnormal loss or purpose change, or is exclusively used for taxation items under the simplified taxation method, VAT exempted items, collective welfare or individual consumption, the nondeductible input tax shall be calculated according to the formula as follows:
　　Nondeductible input tax = (deducted input tax + input tax to be deducted) * net value rate of real estate
　　Net value rate of real estate = (net value of real estate / original value of real estate) * 100%
　　In case that the nondeductible input tax is equal to or less than the deducted input tax on real estate, the nondeductible input tax shall be deducted from input tax in the period when the purpose of the real estate is changed.
　　In case that the nondeductible input tax is greater than the deducted input tax on real estate, the deducted input tax shall be deducted from input tax and the difference between the nondeductible input tax and the deducted input tax from the input tax to be deducted on the real estate, in the period when the purpose of the real estate is changed.

　　Article 8 In case that any real estate construction in progress is subject to abnormal losses, the deducted input tax on purchased goods or design services and building services that have been consumed shall be wholly transferred out in the current period and the input tax to be deducted thereof shall not be deducted.

　　Article 9 If the purpose of the real estate whose input tax is nondeductible as required is changed for projects with input tax deductible, the deductible input tax can be calculated according to the formula as follows in the month following the month when the purpose is changed.
　　Deductible input tax = input tax noted or calculated in the VAT deduction certificate * net value rate of real estate
　　A lawful and valid VAT deduction certificate issued after May 1, 2016 shall be obtained for the deductible input tax calculated in accordance with this article.
　　For the deductible input tax calculated in accordance with this article, 60% thereof shall be deducted from output tax in the month following the month when the purpose of the real estate is changed, with the remaining 40% thereof, as the input tax to be deducted, deducted from output tax in the 13th month following the month when the purpose of the real estate is changed.

　　Article 10 When a taxpayer has its tax registration cancelled, the input tax to be deducted of the taxpayer that is not wholly deducted shall be deducted from output tax in the period when the tax registration is cancelled.

　　Article 11 The input tax to be deducted shall be recorded in the item of "tax payable – input tax to be deducted", and then transferred into the item of "tax payable – VAT (input tax) payable".
　　A taxpayer shall calculate the input taxes to be deducted on different real estate and real estate construction in progress.

　　Article 12 When deducting real estate input tax by installments, a taxpayer shall faithfully fill in the materials attached to the VAT return.

　　Article 13 A taxpayer shall establish ledgers for real estate and real estate construction in progress to record the costs, expenses, tax deduction certificates, and deduction conditions of input tax thereof respectively for archival purpose and future reference.
　　The relevant information on the real estate and real estate construction in progress used for taxation items under the simplified taxation method, VAT exempted items, collective welfare, or individual consumption shall also be recorded in the ledgers established by the taxpayer.

　　Article 14 In case that a taxpayer fails to deduct input tax on real estate and real estate construction in progress in accordance with these Interim Measures, the competent tax authority shall handle the issue in accordance with the Law of the People's Republic of China on the Administration of Tax Levying and the relevant provisions.