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Rental Fapiao: How to Reduce Tax Costs on Your Housing

Posted by: Zhorea Garcia
Category: Tax and Regulations, Useful Tips
Rental Fapiao How to Reduce Tax Costs on Your Housing

Foreigners in China tend to overlook concerns related to taxes for as long as their employers can take care of it. However, every taxpayer should be aware of any opportunity to qualify for a tax exemption whenever possible.

Take a look at our previous article about Foreigners in China: How to Qualify for a Tax Exemption

Your housing rental, for example, is usually included in your salary which is therefore added to your taxable income. But do you know that there is a way to limit this rental tax and rather save it? Keep reading to find out how!

Housing fund vs. housing allowance

Although recently, China has included foreigners on the social insurance scheme, it is not compulsory and thus, foreigners seldom avail of it as it means giving a monthly contribution to the government. Instead, foreigners usually look for employers who can offer other benefits such as housing or food allowances. Particularly, the housing or rental allowance is a huge relief for foreign workers especially if they live in cities with expensive real estate housing such as Beijing or Shanghai.

If a foreigner opts for a housing fund contribution, he or she can enjoy housing rent deductions under China’s special itemized deductions covered by the new IIT law.

For more information, check out our previous post on Housing Rent Deductions for Taxpayers in China

On the other hand, a foreigner can take advantage of a housing allowance paid by his or her employer. However, he or she must guarantee the submission of a “rental fapiao” for tax declaration purposes. A rental fapiao is important to get a reimbursement from your employer as housing allowance paid by cash is subjected to IIT.

Oftentimes, employers provide the housing allowance to their foreign employees along with the salary package or they expense it monthly. Based on the real rental fapiao, the amount of housing rent should better be under 30 percent of the total salary.

What is “rental fapiao”?

A rental fapiao is equivalent to a rental invoice. Chinese landlords typically issue a rental fapiao to foreign workers who are renting apartments in cities. Moreover, rental tax costs and procedures for getting a fapiao also vary from city to city.

Both housing funds intended for social insurance and other employment benefits such as housing allowance require relevant fapiaos in order to get pre-tax deductions or tax exemptions, respectively. In other words, fapiao is beneficial in saving on taxes by reducing the amount of taxable income.

Meanwhile, employers may also benefit from lesser taxes if a rental fapiao is issued.

How to get your rental invoice or fapiao?

The first step into getting a rental invoice in China is asking for your landlord to provide you with one. Apartment owners are expected to register their rental property and pay rental taxes. Hence, they are the only ones responsible for issuing your rental fapiao.

What are the documents needed?

  • Property certificate (from the landlord)
  • Rental or leasing contract between tenant and landlord
  • Tenant’s passport (for foreigners)
  • Landlord I.D.

You must bring the original and copies of the documents to the subdistrict office (街道办) intended for house rental tax collection near your residence. Most importantly, you should go to the said office with your landlord or a representative of the landlord. However, the representative must present his or her I.D. and an authorization letter from the landlord. Moreover, if the property certificate bears two names, it is required to bring original and copy of the second person’s I.D.

On the other hand, companies that need to obtain the fapiao must provide their business license bearing the company’s tax number.

Tax calculation (for Shanghai):

Rental amount / 1.05 (consolidated property tax rate) x 0.025 (preferential tax rate)

Things to consider

For most landlords in China, issuing a fapiao also means paying for taxation costs. Because of this, Chinese property owners may be hesitant to go through the hassle of providing for your rental fapiao. In the worst case, you end up paying for a higher rental fee to cover up for the tax costs. The additional amount is usually a few hundred yuan, including a rental tax that landlords won’t pay if they are not registered.

Before renting an apartment, it is imperative to ensure that you are signing an agreement with a registered property. In this case, you can avoid future conflict with your landlord.

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Author: Zhorea Garcia

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