Many foreigners are concerned with China estate taxes when they inherit estates in China.
As a matter of Law, China has not formally enacted estate tax laws despite rumor about it for many years. I personally don’t foresee this enactment any time soon. After all, without this law, Chinese rich people are already fleeing this country for various reasons. An estate tax law will definitely accelerate this flight and seriously undermine China national interests.
That said, when you inherit any estate in China, you are basically free from any taxation on the estate you are going to take back home.
However, in the case of inheritance of real estate such as land and houses in China, there are other tax issues to be taken into account, and a good tax planning may save you substantial money esp when the inheritance involves multiple heirs and real properties.
For this tax planning, we don’t just focus on the process of inheritance itself, but consider the future sale of the inherited properties at the same time.
A client of mine is to inherit five properties in Shanghai left by his late father with another two heirs being his mother and sibling. There was a valid will made by the deceased father bequeathing his estate to all these three heirs with each heir entitled to a portion of the estate. The heirs are in no dispute. Before consulting with any professionals, they just proceeded with the inheritance in accordance with the will, with the help of a local friend in Shanghai. It has proven to be a bumpy road in regard of the inheritance because they are asked to prepare documents which are found in conflict at the end. With a leaden heart, the client found me via this blog. Upon learning the situation, I immediately realized that there is a good room for tax planning that can save a lot of money for the client family.
Here are some tax implications which shall also consider China marriage laws. Sorry for not coming too clear about the full picture because, after all, this is something I will rely on to make a few bucks.
(1) Taxes in the course of inheritance by heirs:
Indeed, there are basically no taxes at all. The heirs receiving title in the estate properties don’t have to pay the deed tax that is usually charged upon any type of title transfer. In Shanghai, this deed tax is exempted from payment. Exemption of deed tax may not be available in other parts of China.
As this is an inheritance, not a normal sale, there is no business tax, nor income tax to be paid.
However, if the estate receiver is not an heir of next of kin but some non-blood-related acquaintance, then taxes will be different.
(2) Taxes when the inherited properties are to be sold
Sooner or later, the heirs receiving the estate may sell the properties. It is not always beneficial to hold properties in a foreign country. Indeed, majority of my clients of inheritance wish to sell the real estate in China because most people are seeing no big potential for value hike in China property market in the future.
If not properly planned and structured, the heirs may end up paying millions of RMB more individual income tax.
In regard of individual income tax, there are a few rules most relevant. For example, China tax authority has prescribed that property owners who obtain their properties by way of gift, inheritance from their immediate next of kin shall be subject to 20% of income tax rate based on the price of the property at the time of sale minus items of costs and expenses allowed to be deducted from the sale price. This is a big deal given that most properties in China has doubled or tripled or even quadrupled in value over the last decade.
However there are other rules to counter or avoid that big tax burden so long as the ownership of the properties are structured in a smart way before sale.
There will be also business taxes to be considered.
China Marriage law is also involved when the properties left by the deceased belong to the community property of the couple, which means only half of the property will be counted as estate of the deceased.
There is another technique that can be employed to phase out heavy taxes in China.
I have always known about China that the tax issues there are tricky to handle but I never knew it was this big of a deal to sort through them. Millions are wasted to get back to the Chinese economy.
Thanks by the way with your post, very informative and helpful!
You are welcome. There will be more to come in the future.
Can you tell me if Asset Stamp and Duty Fees and HKMA Application Fee would be required on an Inheritance from a relative who held a substantial account in a Chinese bank. I am a UK citizen living in the UK.
I would be very grateful for your help on this. Thank you.
Hi Dave, we don’t have the Asset Stamp and Duty Fee or HKMA in China. I don’t even know what they are. You can read another post on my blog regarding inheritance of bank account (personal properties) and you may find more useful information.
Thank you for your reply! I have sent more information via email. Thank you again.
i have replied through email as well. it is more likely to be a scam.
We recently found out my late mother who passed away almost 20 years ago had a property in Guangzhou which she inherited from her father. My siblings and I plan to go through the inheritance process to get the property if possible. All of us live in North America and none of us is Chinese national. I understand there’s no estate or inheritance tax in China. But when we sell said property, do we have to pay individual income tax on the profit from the sale (20%?)? If so, how is the basis determined since my mother inherited this property? What other taxes are required? Your advice would be greatly appreciated. Thank you!
hi Christine, you may don’t have to pay any income tax at all when you sell it. How is it going with the inheritance? We help foreign clients in dealing with estates in China for many years and we have quite a number of cases in Canton province. When you hire a lawyer in China for the work, you don’t have to travel to China to attend to the process and we can help you carry out the inheritance and sale with a properly drafted power of attorney.
If a Singaporean bought a Shanghai condo property a, he needs to do another will in China? Must it be by local lawyer? What is the sales tax if the inherited property is sold ?
That is the best you can do to avoid future trouble for the beneficiary. As it is to be used in China, the best you can do is to come to China to make the will.
I inherited a house in Canton , our parants died in 2012. I travelled back to Canton and have the transfer deed. The housing department charged me a VAT of $10800 yuens.
In 2018 the house is worth $500,000 USD.Do I have to pay inheritance tax? Do I have to pay the step up gain? Do I have to pay 20% of the selling price as an income tax when I sell the house? Thanks!
Grace, it seems that you have completed the inheritance already and now in the process of selling the property. Not clear about the detailed situation and it’s likely that you don’t have to pay any taxes here upon your sale except for a possible VAT tax.
It is strange that you were required to pay VAT in the process of the inheritanace. If you are wiling to sell it, we can help you with he sale. I am right now helping a couple of clients in dealing with their properties in Guangzhou.
Would you recommend a lawyer who can instruct me
What other expenses I have to pay ?
How can I transfer the money to the USA after the sale?
I paid $10786 when applying the transfer deed , I may wrongfully named the tax as VAT. It maybe named differently, then I was finger printed and sign my signature at the application at the same time.
After I paid and finger printed, how long will I have to wait until I receive the red book( the deed)? Thanks
Grace,where is the propeery? Have you already sold it? We Can help you with money repatriation.
House is in Canton, Yuexiu district.
What is the best legal way to sell the house? After paying the notarized transferred deed fee ( or VAT ?) $10678 yuan, how much other expanses or tax should I have to prepare ?
What is your fee schedule? Initial consultation fee? Case or hourly fee???
Ps. As a forgnior. Is it legal to sell the house and send the money all at one time
Grace, I sent you an email regarding your inquiry.
My mother and I are both foreigners with no Chinese citizenship. She passed away a few years ago unexpectedly without leaving a will. I am being told that because she didn’t leave will and due to china’s law of legal line of succession, I am not the only one that has rights to inherit the real estate property she owns. But also my father (whom she legally divorced from in our country of residence), my grandparents and also her siblings ( my aunts and uncle)
1.) I’m being told that my grandparents, aunts and uncles all have to have written proof that they give up rights to the real estate and are agreeing to allow me to solely inherit the property alone. is this true that they also have inheritance rights?
2.) in the case of my father. they are divorced in our foreign country of residence, to which i have the paperwork to proof, will this be valid enough to void his rights to the property? I’m being told that it may be complicated because they never filed for divorce in china thus they are considered “legally” married still in china?
3.) lastly, my mom has passed away a few years ago. Is there a time limit as to when i need to take care of the inheritance property in china? Will it cause any complications in the future if I wait a few more years to do it?
thank you so much for any legal insight!
Yadi, you are still entitled to the estate. As for your father, it is important to know when the property was bought and when they divorced. Please send me an email detailing more about your situation. I will ask a few more questions to assess your conditions and complexity for inheriting your late mom’s estate in China.
Thanks for your blog and the insightful articles.
I have a question concerning transferring money out of China. To my understanding Chinese citizens are only allowed $50K USD transfer out annually. Does this restriction apply to foreign citizens?
Specifically, if I sell my inherited property in China and transfer the sales proceeds out to a foreign country. Would there be a dollar limit for such a transfer?
Hi Jackie, strictly speaking Chinese citizens’ annual quota of USD 50,000 means that Chinese citizen can freely purchase and convert foreign exchange. If Chinese citizens need more than USD 50,000, then can still get it so long as they provide supporting documents to prove the legitimate need of the fund.
Foreign individuals are also allowed to convert up to USD 50,000 annually into RMB freely. However, foreign individuals don’t have the annual quota of purchasing foreign exchange.
In your question, it is not about annual quota. It is something that has been in place for years. Foreigners are allowed to purchase foreign exchange equal to the RMB fund resulted from the sale of property. There won’t be any issue here for you.
I inherited a house in MeiZhou (now under my name) which I wish to gift to an uncle.
I am told the best way to gift is via a sale. But, the tax which I need to pay is extremely high. I am told the tax is 40%*4000RMB*120 + 6%*(6000*120 + 1800*300) where 120 is the land and 300 is the bldg.
As far as I know, transaction cost for a sale is 3% for deed tax and 0.1% for stamp duty. I believe the value of the house is < 500K.
Would be kind to share the reason for the tax?
I don’t really understand the tax calculation. I believe your understanding of the tax is correct so far as the gifting process is concerned. Your uncle may be subject to a great tax when he sells the property but there won’t be much tax at the time of gifting.
I am a US citizen. If I inherent some shares and sold them, would there be any capital gains taxes on it? If there is, how the base is calculated?
I am an American citizen and I have a question regarding inheritance of real estate in Fuzhou, China.
My father passed away in 2008 and left me, my 2 siblings and my mother an apartment. My mother has dementia and is very sick in hospital in Fuzhou. About two years ago, my siblings asked me to send them an authenticated document giving up my share of my father’s apt. When I didn’t do that, they told me that I didn’t take care of my parents while they are sick and therefore am not entitled to the inheritance. I have always helped out financially with my parents including paying for the burial plot (all by myself) and medical expenses, etc. and I visited them regularly.
My question is: Can my siblings go to court and lie that I didn’t take care of my parents and the court would believe them and give them everything? I have a job in the US and it is impossible for me to travel to China on a regular basis to fight them in court.
Any advice would be greatly appreciated.
Hi Anna, no, you won’t be deprived of your inheritance right. Is there any records or registration of your birth or existence in China official documents? If there is no trace of your existence, they might be claiming that your Dad has only two children, therefore leaving you out of the picture. If the interest is substantially, you should consider suing to court for inheriting your share of the estate. For such cases, once you grant a power of attorney to a lawyer in China, you don’t have to come back and forth to fight with them. can you send me the address of the estate property and how much is it worth roughly? Jason
I have a question regarding inheritance of a real estate .
I am an australian citizen, are there taxes or charges the chinese government will charge if I inherit real estate or money once my mother passes? She lives in china and is a chinese citizen.
thankyou for your time.
for inheritance of real estate or money itself, there is no basically no taxes imposed on you. You will pay some normal taxes when your sell the inherited property in the future. China does not have estate tax so far.