Shanghai's tax rate on rent income rises sharply

PUBLISHED : Wednesday, 09 April, 2003, 12:00am
UPDATED : Wednesday, 09 April, 2003, 12:00am

Shanghai has raised the tax rate on rental income from non-residential properties owned by individuals from 5 per cent to 17 per cent, squeezing profit margins in the sector.

The new taxation policy was announced recently by the Shanghai Municipal Administration of Local Taxation, according to Shanghai Evening Post.

Under the policy, the tax rate on rental income from residential properties owned by individuals remains at 5 per cent.

For non-residential properties, individual owners are required to pay a 5 per cent operation tax and a 12 per cent property and personal income tax.

The taxation rate on rental income from all individually owned properties had been 5 per cent since 2000.

It was the latest measure taken by the Shanghai government to prevent the city's booming property market from overheating, analysts said.

Average returns on non-residential properties were usually higher than those for residential properties but investors would re-evaluate their position because of the huge tax increase, they said.

Prices of non-residential properties were expected to rise as the municipal government had allowed foreign individuals and companies to rent or buy these buildings from March 1. Before then, they were only permitted to buy or rent designated non-residential buildings.

But the government is worried about a bubble emerging in the property market, where prices have soared in the past two years.

Last year, the government suspended several preferential policies for individuals buying houses and announced plans to build more government-subsidised apartments. It plans to tighten control over the land market and set strict standards for urban planning.