Tax Lawyers' Interpretation of the State Taxation Administration Announcement on Several Administrative Guidelines for Land Value Added Tax (Exposure Draft)

 

Editor's Note: Land Value Added Tax (LVAT) is a key tax for regulating the real estate market and participating in land revenue distribution, and the standardization and unification of its administration have always attracted much attention. Recently, the State Taxation Administration (STA) issued the Announcement on Several Administrative Guidelines for Land Value Added Tax (Exposure Draft) (hereinafter referred to as the "Announcement") to solicit public opinions. Prior to this, based on industry observations, Huashui Tax released the 2025 Compliance Report on Land Value Added Tax in the Real Estate Industry, which pointed out that current LVAT risks are highly concentrated in the standardized application of substantive tax elements. In practice, tax-enterprise disputes frequently arise over core tax system elements such as the period for collecting deductible items, exemption from LVAT for government land repossession, and the selection of allocation methods. The root cause lies in insufficient institutional supply. This Announcement serves as a crucial supplement to the national-level LVAT system, addressing concerns from frontline practice and market entities. This article will analyze each of the eight specific clauses of the Announcement, aiming to provide references for both tax authorities and taxpayers to accurately grasp the policy intent and actively participate in opinion feedback.

 

01 Clarifying the Time Frame for Prepayment of LVAT

The first clause of the Announcement clarifies the time frame for LVAT prepayment. The start time is determined by the "date of issuance of the first pre-sale permit" or the "date of receipt of the first advance (sales) revenue," whichever comes first. This rule has been widely applied across various regions. The core of this clause lies in defining the cutoff time of the period to which the prepaid tax belongs (prepayment period), which is "the end of the previous prepaid tax period when the tax authority accepts the taxpayer’s liquidation declaration." For example, if the tax authority accepts the liquidation declaration on May 10 and the local area implements monthly prepayment, the prepayment period ends on April 30, and sales revenue received after May 1 will no longer be subject to prepayment declaration.

To understand the significance of this clause, it is necessary to first trace its purpose: resolving the current confusion in tax administration, which stems from the ambiguity of national-level old regulations. Article 16 of the Implementation Rules for the Interim Regulations on Land Value Added Tax (Cai Fa Zi [1995] No. 6) only establishes the "prepayment + liquidation" model in principle, stipulating that "income from the transfer of real estate before the completion and settlement of the entire project... may be subject to prepayment... and liquidation shall be conducted after the entire project is completed and settled." The word "after" does not strictly separate the two procedures of prepayment and liquidation; instead, it leaves room for overlap between their time frames, resulting in situations where prepayment may not stop immediately when the project meets the liquidation criteria.

This ambiguity has led to the evolution of multiple standards for the cutoff of the prepayment period in practice across regions:

Some regions use the "date when the liquidation criteria are met" as the cutoff (e.g., Jiangxi Province). This strictly separates prepayment and liquidation, with clear logic but rare application in practice.

Some regions anchor on the "date of LVAT liquidation declaration" (e.g., Shandong, Fujian, Hainan, and Inner Mongolia), linking the end of prepayment to the taxpayer’s active declaration.

Zhejiang and Ningbo introduce two variables—"quarter" and "acceptance"—stipulating that prepayment stops from the start of the quarter in which the tax authority accepts the liquidation declaration. This rule is relatively complex, with a floating cutoff point.

Guangxi, Guangdong, and Tibet continue prepayment until the "date of issuance of the liquidation review conclusion," resulting in the longest overlap between the prepayment period and the liquidation period.

Overall, the rules across regions exhibit three distinct characteristics: First, some regions have clear regulations, while others (e.g., Ningxia, Hubei) do not, and can only rely on the ambiguous national-level clauses, leaving enterprises with no clear expectations regarding the end time of prepayment. Second, implementation standards vary significantly. Beyond the four scenarios mentioned above, Xinjiang’s wording is identical to this Announcement, while Chongqing uses the "end of the quarter preceding the liquidation benchmark date." Third, most regions experience overlap between the prepayment period and the liquidation period, complicating tax collection and payment procedures in practice.

Clause 1 of the Announcement unifies the standards for the cutoff of the prepayment period, effectively resolving the issue of "inconsistent policies from multiple sources." However, there is still room for improvement in the rules. If the prepayment period is determined based on "the end of the previous prepaid tax period when the liquidation declaration is accepted," linking it to the subsequent period for collecting sales revenue and sales area will trigger cascading issues due to the uncertainty of the tax authority’s acceptance time, potentially exposing taxpayers to unavoidable risks of inaccurate declarations. In fact, if the cutoff date of prepayment is directly set as "the end of the previous prepaid tax period before the taxpayer completes the initial liquidation declaration date," the risk of inaccurate declarations caused by misaligned time nodes can be avoided. The author will further analyze this in the subsequent clauses related to the collection period.

02 Clarifying the Tax Base for LVAT Prepayment

Clause 2 of the Announcement clarifies the tax base for LVAT prepayment, stipulating that for real estate development enterprises selling self-developed real estate projects through advance receipts, the tax base for prepayment = advance receipts ÷ (1 + applicable VAT rate or levy rate). This rule is consistent with the tax calculation methods for VAT and corporate income tax, with the core objective of unifying the standard for calculating the tax base during the prepayment phase nationwide.

To understand the necessity of this clause, it is essential to review its policy background. After the full implementation of the replacement of business tax with value-added tax (VAT reform) in 2016, the STA issued the Announcement on Several Administrative Provisions for Land Value Added Tax after the VAT Reform (Announcement No. 70 of 2016). Clause 1 of this document proposed that "for real estate development enterprises selling self-developed real estate projects through advance receipts, the tax base for LVAT prepayment may be calculated using the following method: Tax base for LVAT prepayment = advance receipts - VAT payable in advance." This formula is commonly referred to as the "difference method." However, the flexibility afforded by the word "may" led to divergent implementation standards across regions in practice:

Shandong, Tianjin, and Guangxi strictly adhere to the "difference method," directly using advance receipts minus prepaid VAT as the tax base.

Inner Mongolia and Sichuan list both methods in their regulatory documents, allowing taxpayers to choose based on actual circumstances.

Zhejiang has more detailed provisions, distinguishing between sales methods: the "difference method" is used for sales by advance receipts, while the "price-tax separation method" is used for direct sales.

This Announcement uniformly adopts the "price-tax separation method." Its core policy intent is not only to simplify calculations but also to eliminate regional differences. Previously, due to different methods, the same business might face different cash flow pressures in different regions, and even trigger tax-enterprise disputes. With the unified rule, taxpayers no longer face regional differences in tax costs, enabling clear expectations of tax burden during the prepayment phase. Frontline tax authorities also have clear implementation standards, further enhancing policy certainty.

03 Clarifying the Collection Period for LVAT Sales Revenue and Sales Area

The core of Clause 3 of the Announcement is to clarify the cutoff time for collecting sales revenue and sales area during LVAT liquidation, and link it to the cutoff time of the prepayment period specified in Clause 1. The cutoff time is defined as the end of the previous prepaid tax period when the tax authority accepts the liquidation declaration. Although the Announcement intends to connect liquidation management with prepayment management and residual property management through this linkage, this rule may trigger a series of complex situations in practice, leading to the aforementioned issue of "inaccurate declarations."

Taking monthly prepayment as an example: If an enterprise declares liquidation on April 5 and the tax authority accepts it on April 15, according to the Announcement, the collection period ends on March 31. In this case, sales revenue from April 1 to 15 will be declared as residual property sales after the completion of the liquidation review, enabling seamless connection. However, if the enterprise declares liquidation on April 25 and the tax authority accepts it in the next month (e.g., May 5), the collection period ends on April 30. A problem arises here: when the enterprise files the liquidation declaration on April 25, it cannot predict the sales revenue from April 26 to 30, resulting in inherently incomplete data in the liquidation declaration and unavoidable "inaccurate declarations." To file an accurate declaration, repeated corrections are required, causing troubles for both tax authorities and taxpayers. If the tax authority delays accepting the liquidation declaration until June, sales revenue from April and May must be included in the liquidation. However, the enterprise cannot predict this future revenue when filing the declaration in April, seriously affecting the accuracy and seriousness of the declaration. If the prepayment period is calculated quarterly, the larger quarterly span will exacerbate fluctuations in the scope of revenue collection due to the relative position of the declaration date and the end of the quarter, leading to greater uncertainty than monthly prepayment.

The root cause of this problem lies in the Announcement’s linkage of the collection period—an item that enterprises should independently determine based on project conditions—to the acceptance behavior of tax authorities. It is the uncertainty of the tax authority’s declaration acceptance time that leads to the uncertainty of the collection period, thereby causing taxpayers to make inaccurate declarations due to their inability to predict the end of the collection period.

This raises a question worthy of further discussion: Are there better solutions? From a practical perspective, many regions currently link the end of the collection period to the taxpayer’s independent declaration behavior, or even directly entrust taxpayers with the right to determine it. For example, Ningbo stipulates that the collection period ends at the end of the quarter preceding the initial liquidation declaration; Hainan and Anhui use the liquidation declaration date as the cutoff. These local practices link the end of the collection period to the taxpayer’s declaration behavior, enabling taxpayers to clearly and effectively grasp the scope of revenue and costs subject to liquidation. Beijing and Xiamen have a more flexible model, allowing enterprises to independently select any day within the 90-day liquidation declaration period as the collection cutoff date. This approach enables enterprises to flexibly align the time point with the project’s sales progress, ensuring the complete collection of revenue and costs, effectively avoiding the risk of inaccurate declarations, and better adapting to practical needs.

The author believes that improvements to the Announcement’s rules can be explored from three aspects: First, decouple the prepayment period and the collection period, and allow enterprises to independently select the collection cutoff date within the statutory time limit (referencing the Beijing and Xiamen models). This fundamentally resolves the difficulty of confirming the scope of liquidation objects caused by uncertain acceptance times, ensuring that declaration data truly reflects business conditions. Second, if the unification of the prepayment period and the collection period is maintained, adjust the cutoff point to "the end of the previous prepaid tax period before the taxpayer completes the initial liquidation declaration date." This allows enterprises to clarify the collection scope when filing declarations without waiting for the acceptance result, and better align with the sales cycle by choosing the declaration time. Third, within the current regulatory framework of the Announcement, introduce a "supplementary declaration" mechanism, stipulating that taxpayers may correct or supplement declarations through simplified procedures for revenue generated after the liquidation declaration but before acceptance.

04 Clarifying the Deduction Standards for Expenses Outside the Project Planning Scope

Clause 4 of the Announcement clarifies that when a taxpayer acquires land use rights, if the land transfer contract and supplementary agreements with the people’s government at or above the county level or its relevant departments stipulate that the taxpayer must construct public facilities outside the planning scope of the real estate development project (i.e., "outside the red line"), the actual expenses incurred may be included in the "amount paid for acquiring land use rights" for deduction. This clause unifies the long-controversial tax treatment rules for "expenses outside the red line" at the national level.

In the practice of land transfers, local governments often require developers to undertake the obligation of constructing public facilities outside the red line to improve regional supporting facilities—such as municipal roads, community parks, and public schools. However, there were significant regional differences in policies regarding whether such expenses could be deducted during LVAT liquidation:

Shanxi clearly stipulates in its regulatory documents that expenses for greening, road construction, and supporting facilities outside the land red line shall not be deducted.

Ningbo, Qingdao, and Xiamen stipulate that if the obligation to construct facilities outside the red line is clearly stated in the land transfer contract and is directly related to the acquisition of land use rights, the corresponding costs and expenses may be included in public supporting facility fees or the "amount paid for acquiring land use rights" for deduction.

These regional differences imposed higher compliance costs on cross-regional real estate enterprises, which had to adjust their tax treatment plans according to policies in different regions.

Against this background, Clause 4 of the Announcement elevates the mature practical experience of Ningbo, Qingdao, and other regions to a nationwide unified rule, which is of positive significance. From the perspective of tax principles, this provision fully respects the economic substance: when the obligation to construct facilities outside the red line is clearly written into the land transfer contract, such expenses essentially become the "implicit consideration" for enterprises to acquire land use rights. Failing to allow their deduction would distort the actual land costs of enterprises, violating the principle of "tax neutrality"—i.e., not distorting enterprises’ normal business decisions due to tax policies. At the same time, this rule is consistent with the tax calculation logic of the Deed Tax Law. Article 4 of the Deed Tax Law clearly states that the tax base for deed tax includes "the transaction price specified in the land and house ownership transfer contract, as well as the consideration corresponding to monetary payments, in-kind contributions, and other economic benefits." The obligation of enterprises to construct facilities outside the red line falls into this category of consideration and must be included in the deed tax base. Since both LVAT and deed tax take land value as their core tax base, allowing the deduction of such expenses ensures the internal logical consistency of the tax system.

It is worth noting that the Announcement sets clear prerequisites for the deduction of expenses outside the red line, ensuring policy implementability while preventing abuse risks: First, the obligation must be based on the land transfer contract or its supplementary agreements, not oral agreements. Second, the contracting party must be the people’s government at or above the county level or its relevant departments. Third, the construction content is limited to public facilities, excluding commercial supporting facilities independently developed by enterprises. Fourth, the expenses must be actually incurred, supported by legitimate and valid vouchers. These four elements form a complete review chain, providing frontline tax authorities with clear implementation standards and guiding enterprises to standardize document retention.

05 Clarifying the Deduction Standards for Stamp Duty and Local Education Surcharges

Clause 5 of the Announcement clarifies two core rules: First, if stamp duty paid by a taxpayer for real estate transfer is included in the "Taxes and Surcharges" account in accordance with corporate accounting standards or accounting systems, it may be classified as "taxes related to real estate transfer" for deduction when declaring LVAT. Second, local education surcharges paid for real estate transfer shall be deemed as taxes for deduction.

First, regarding the background of stamp duty deduction. Item (2) of Article 2 of the Provisions on VAT Accounting Treatment (Cai Kuai [2016] No. 22) stipulates that after the full implementation of the replacement of business tax with VAT, the account name "Business Taxes and Surcharges" shall be changed to "Taxes and Surcharges." This account records taxes and surcharges incurred by enterprises in their business activities, such as consumption tax, urban maintenance and construction tax, resource tax, education surcharges, as well as property tax, urban land use tax, vehicle and vessel tax, and stamp duty. The item "Business Taxes and Surcharges" in the income statement shall be changed to "Taxes and Surcharges." The Announcement clarifies that if stamp duty paid during the transfer process is included in "Taxes and Surcharges," it may be classified as "taxes related to real estate transfer" for deduction when declaring LVAT, aligning with the accounting system after the VAT reform.

Second, regarding the deduction of local education surcharges. Local education surcharge is a government fund levied alongside VAT and consumption tax, with a nature similar to that of education surcharge. Item 5 of Article 7 of the Implementation Rules for the Interim Regulations on Land Value Added Tax stipulates that "education surcharges paid for real estate transfer may also be deemed as taxes for deduction." However, local education surcharge is not mentioned here, leading to disputes over its eligibility for deduction during LVAT liquidation. The Announcement clarifies that local education surcharges shall be "deemed as taxes for deduction," eliminating this uncertainty and reducing the tax burden on taxpayers.

06 Clarifying the Declaration of Residual Property Sales During LVAT Liquidation

Clause 6 of the Announcement focuses on the declaration of residual property sales during LVAT liquidation, clarifying three core rules: First, revenue generated by taxpayers after the prepayment period but before the issuance of the liquidation review conclusion shall be declared and taxed as residual property sales. Second, revenue generated during this period shall be uniformly declared in the first tax declaration period after the issuance of the review conclusion. Third, revenue generated after the issuance of the liquidation review conclusion shall be declared and paid quarterly as residual property sales.

From a practical perspective, enterprises need to focus on two key aspects: First, clarify that the scope of "residual property" before the issuance of the liquidation review conclusion will be expanded from the traditional "from liquidation declaration to issuance of the liquidation review conclusion" to "from the end of the prepayment period to issuance of the liquidation review conclusion," covering the entire liquidation phase. Second, align the tax payment period for liquidation review taxes with that for residual property sales "from the end of the prepayment period to issuance of the review conclusion." This means that even if the taxpayer has objections to the liquidation review conclusion and initiates administrative reconsideration or litigation, it must still calculate the tax payable on residual property sales based on the liquidation review conclusion and file and pay the tax in a timely manner, unless the liquidation review conclusion notice is revoked.

07 Clarifying the Calculation Method for Unit Costs and Expenses of LVAT on Residual Property Sales

Clause 7 of the Announcement clarifies the calculation rules for unit costs and expenses of LVAT on residual property sales, stipulating that "when a taxpayer declares LVAT on residual property sales, the unit construction area cost and expense for each type of real estate = total deductible items of the corresponding type of real estate as determined by the tax authority’s review ÷ marketable gross floor area (GFA). Here, deductible items include taxes related to real estate transfer." It can be seen that the Announcement’s changes mainly manifest in three aspects: First, compared with the Notice of the State Taxation Administration on Issues Concerning the Administration of Land Value Added Tax Liquidation for Real Estate Development Enterprises (Guo Shui Fa [2006] No. 187), the calculation base is adjusted from "total GFA" to "marketable GFA." Second, it requires calculating the unit deductible cost separately for each type of real estate (e.g., ordinary residential properties, non-ordinary residential properties), aligning with the commonly used "two-category method" and "three-category method" in current liquidation practices. Third, it clarifies that deductible items include "taxes related to real estate transfer." The first two adjustments effectively resolve the ambiguity in cost allocation in the past, but the third adjustment is controversial in practice, as analyzed below:

First, cost calculation relies entirely on the liquidation review conclusion and does not consider additional costs incurred during the residual property phase, resulting in excessive rigidity. The clause directly links the unit cost of residual property to the amount determined by the liquidation review, excluding additional expenses that may arise during residual property sales. Comparing with local practices, Xiamen’s approach is more in line with economic substance. The Measures for the Administration of Land Value Added Tax Liquidation for Real Estate Development Projects in Xiamen (No. 1 of 2023) clearly states that "if a taxpayer provides additional decoration for residual property sales, the additional decoration costs specified in the Real Estate Sales Contract or its supplementary contracts shall be included in the real estate development costs of the corresponding type of property." This approach recognizes the reasonable investments of enterprises during the residual property phase, ensures the complete collection of costs, and avoids tax base distortion caused by rigid rules, making it worthy of reference.

Second, the phrasing "deductible items include taxes related to real estate transfer" is ambiguous, as it does not clarify the period to which the taxes belong. The clause fails to specify whether the "taxes" here refer to those accounted for during the liquidation phase or those actually incurred during the residual property sales period, potentially leading to divergent interpretations across regions. From the mature practices of Hainan, Beijing, Anhui, Inner Mongolia, and other regions, they generally stipulate that "the unit construction area cost and expense during liquidation do not include taxes related to real estate transfer," and taxes actually paid during residual property sales shall be calculated and deducted separately. This approach has two advantages: On the one hand, it avoids shifting the tax burden of the liquidation period to the residual property phase, maintaining a unified cost accounting standard. On the other hand, it directly matches the residual property taxes with the current period’s revenue, conforming to the accounting and tax principle of "matching revenue with costs and expenses," making it more reasonable.

08 Clarifying the Application of Tax Exemption Policies for LVAT on Residual Property Sales

The core of Clause 8 of the Announcement is to extend the LVAT exemption policy for ordinary standard residential properties to the residual property sales phase. It clarifies that when a taxpayer declares residual property sales, if the appreciation amount of ordinary standard residential properties in the current period does not exceed 20% of the deductible items, the exemption shall apply; if it exceeds 20%, tax shall be paid in accordance with regulations. This rule fills the gap in national-level regulations regarding whether the exemption policy for ordinary residential properties applies to residual property sales.

From a policy background perspective, the Interim Regulations on Land Value Added Tax has long established the core preference that "LVAT shall be exempted for the sale of ordinary standard residential properties if the appreciation amount does not exceed 20% of the deductible items." However, there has been a long-standing lack of clear national-level guidance on whether this policy covers residual property sales, leading to divergent implementation of the same type of residual property sales across regions. Currently, Beijing, Xiamen, Guangxi, and other provinces/municipalities have explored residual property tax exemption rules through local documents: Beijing clearly stipulates that "for real estate transferred after liquidation, ordinary residential properties with an appreciation rate not exceeding 20% shall be exempt from LVAT"; Xiamen stipulates that "when a taxpayer declares LVAT liquidation for residual property sales, ordinary residential properties with an appreciation amount not exceeding 20% of the deductible items shall be exempt from LVAT"; Guangxi also clarifies that "for real estate transferred after liquidation review, ordinary residential properties with an appreciation rate not exceeding 20% shall be exempt from LVAT." Although these local practices provide feasible paths, they are limited by regional boundaries and cannot form a nationwide unified standard. Cross-regional enterprises still need to cope with different policy requirements. This Announcement elevates these mature experiences to national standards, eliminating regional implementation differences, providing taxpayers with stable expectations for residual property tax exemption, and effectively reducing tax-enterprise disputes caused by divergent policy interpretations.

 

Conclusion: The Announcement is a systematic national-level measure to resolve the dilemma of "inconsistent policies and divergent standards" in LVAT and supplement institutional supply. By unifying key rules such as the connection between prepayment and liquidation, the tax base for prepayment, and the deduction of expenses outside the red line, it provides clear guidance for both tax authorities and taxpayers, reduces the discretionary power in law enforcement, lowers enterprise compliance costs, and demonstrates the orientation toward modernization of tax governance. However, some rules still need to be adapted to practical needs: for example, the linkage of the prepayment period and collection period to the tax authority’s acceptance time may lead to deviations in revenue recognition; residual property costs rely entirely on the liquidation conclusion and do not cover additional expenses incurred during the residual property phase; some phrasing is ambiguous, potentially leaving room for disputes in implementation.

For real estate development enterprises, in the face of the new administrative environment brought about by the Announcement, three aspects of compliance need to be strengthened: First, track the detailed local rules and pay attention to divergent interpretations. Second, retain full-cycle project documents to ensure that deductions and declarations are supported by legitimate bases. Third, seek professional assistance when necessary to establish a full-process risk prevention and control system, and achieve reasonable tax burden management on the premise of compliance.