上海市静安公证处副主任张铮公证员关于赠与公证的文章《Shanghai： gifting of real estate and title security》在英国TQR（信托季度评论）电子期刊2019年第3期发表了

《Shanghai： gifting of real estate and title security》
  作者:張錚

http://www.chinanotary.org/content/2019-09/29/content_8005855.html

他将中国公证写入权威杂志，带进国际视野

近日，上海市静安公证处副主任张铮公证员以英文撰写的关于赠与公证的文章《Shanghai： gifting of real estate and title security》在老牌的英国伦敦《STEP》杂志下属的TQR（信托季度评论）电子期刊2019年第3期发表了。文章主要从涉外因素着手，围绕赠与、过户、税收等方面展开，并结合国际公约等内容，向境外读者展示了上海公证乃至中国公证的发展情况。

张铮表示，这篇文章从构思到发表前后历时大半年，其中仅英文稿就修改了26稿。得益于国际公证联盟的专业委员会委员的身份，以及在办理了大量的涉外公证后，张铮在与境外公证人不断的交流中，逐渐萌生了向他们介绍当前中国公证的发展情况。

《STEP》杂志是专为律师、会计师等专业人士服务的以财富传承内容为主的专业期刊，全球共有会员20000名，其中有7000名在英国。

 

SHANGHAI: GIFTING OF

REAL ESTATE AND TITLE SECURITY

The process of gifting real estate in Shanghai, China

 

 

 

BY ZHENG ZHANG

 

A

 

 

donation or gift is a legal act by which the donor gives their property to the donee without consideration.2 A contract of donation is a contract whereby the

donor gives their property to the donee without consideration and the donee indicates acceptance of the gift. Notarisation of a donation contract

is the activity whereby the notary confirms the authenticity and legitimacy of the conclusion of the donation contract by and between the donor and the donee at the request of the party concerned in accordance with legal procedures. Alternatively, the gift can be effected by means of two forms: a donation form and an acceptance form.

Depending on specific circumstances, the notarisation may involve either of these procedures: notarisation of the donation contract or notarisation of the donation and acceptance forms.3 In the latter case, the two forms can be

                                                      

2    Compiled by Lawyer Notary Steering Department of the Ministry of Justice,

Notary Public Reference Manual, 1st edn (Law Press China, 2005), p.178

3   art.11 of the Notarisation Law of the People’s Republic of China stipulates that the notary office handles the following notarial matters on the application of a natural person, legal person or other organisation: entrustments, declarations, gifts, wills

‘A client wishing to apply for notarisation of a donation in China will generally use the services of the notarial office of the place where the real property is located’

 

 

 

signed before different notaries; in the case of a contract, both parties must sign before the same notary. Therefore, notarisation of a donation in the broad sense may involve three types of document: the donation contract, the gift form and the acceptance form.

According to the body of law and regulations on the subject,4 the conditions for notarisation of an acceptance of gift include the territorial competence of the notarial office instructed,

a review of the application materials of the parties concerned (see below) and a declaration of genuine intent by the clients. The Rules for Gift

Notarisation5 stipulate that notarisation of the gift form shall be handled by the notarial office of the place where the donor resides or the real property is located. Notarisation of the acceptance form and the donation contract must be handled by the notarial office of the place where the real property is located.6

Accordingly, a client wishing to apply for notarisation of a donation in China will generally use the services of the notarial office of the place where the real property is located. At present, Shanghai ignores restrictions arising from different administrative divisions. For example, a gift of real property located in Pudong New Area,

Shanghai, can be notarised at the notary office in Jing’an District. The Pudong New Area real estate transaction centre also accepts notarial

certificates issued by the notary office in Jing’an District in property transfers. This results in great convenience for clients.

The review of the client’s application materials also involves checking:

•  the identification documentation of the donor and the donee in order to determine, in cases where the donor is a natural person with foreign nationality, whether the person named in the original certificate at the time of purchase is the same as the person named in the current certificate;

•  the marital status of the donor to determine whether the gift involves community of property; and

•  whether the property that is the subject of the gift has any defect of title.7

SPECIAL POINTS IN GIFT, TRANSFER AND TAXATION CAUSED BY FOREIGN-RELATED FACTORS

In practice, it is a common situation in the case of real property located in Shanghai for either the donor or the donee, or both, to have British or other foreign residency. Unlike an ordinary gift between Chinese residents, the gift in such a case involves foreign-related elements, giving rise to conflicts between different jurisdictions and complicating the process.

GIFT

Individuals may transfer real property in their name before their death in two ways: by sale or gift. Compared with a sale, a gift has advantages based on its special attributes, summarised

as follows:

1.   The total cost of transferring real property by gift less than ftve years from the time of purchase is lower.

For example, in the case of transferring real property less than five years from the time of the last transaction, the cost of the gift is about

4  per cent of the valuation of the portion transferred by gift, much lower than the transaction cost on transfer by sale, which accounts for about 10 per cent

                                                                                            of the valuation of the property. See the taxation

4  arts.25 and 28 of the Notarisation Law of the People’s Republic of China and arts.6–10 of the Rules for Gift Notarisation

section below for more details.

5  Supplementary information to the Notarisation Law of the People’s Republic                                                                                     

of China

6  art.6, Rules for Gift Notarisation

7  Compiled by Shanghai Notary Association, Shanghai Notary Manual, 1st edn (Shanghai People’s Publishing House, 2018), p.2,754

2.   A gift is not subject to property tax.

In the case of a sale of the property, property tax would be payable (see point 3) in the year following the sale, thus substantially increasing the cost of the transaction. No property tax will be incurred in the case of transfer by gift.

3.   The donor may clearly state that the property is gifted to a married donee personally, rather than as property held in community.

According to art.18 of the Marriage Law of the People’s Republic of China, if the donor wishes to ensure that a married donee obtains the property as the donee’s personal property, rather than as community property, the donor may make this clear in the donation contract or the gift form.

This cannot be stipulated in a sale contract as an obligation binding on the parties concerned.

4.   The donee may agree that the donor should have a permanent occupation right in the real property gifted, and the gift can be made subject to this condition.

In practice, in cases where the donor is a senior citizen, such a clause is invariably included in the donation contract or the acceptance form in order to protect the legitimate rights and interests of the senior citizen.

5.   Following notarisation, the donor has no right to revoke the donation contract arbitrarily.

This is expressly stipulated in the Contract Law of the People’s Republic of China (the Contract Law). However, provided there is compliance with legal procedures, the donor may exercise the right of revocation through the court.

6.   If the real property concerned is a shop or office building and the donee has foreign residency, the property can be transferred by gift.

The current real estate purchase restriction policy of Shanghai stipulates that any foreign individual or resident of Hong Kong, Macao or Taiwan who intends to purchase newly built or existing real property in Shanghai is required to meet all of the following conditions:

•  the foreigner owns no property under the family name in Shanghai and holds a labour contract

or work permit in Shanghai having not less than one year’s remaining validity;

•  in the case of a resident of Hong Kong, Macao or Taiwan, the individual has no property in the family name in Shanghai and has a labour contract for service in Shanghai having not less

than one year’s remaining validity or a certificate of student status in Shanghai having not less than one year’s remaining validity; and

•  only residential property may be purchased, not commercial property, such as shops and office buildings.

It is worth noting that the above restrictions only apply to a purchase; transfers by way of gift are not subject to the ‘purchase restriction’ policy.

7.  The period required to complete  a  transfer by gift is short, and the donor can be a minor. The period required to complete a transfer by sale is generally one to two months, while transfer

by gift can be completed within a period as short as ten days. In the case of a sale, if the buyer is a minor, they are considered jointly with the parents as one and the same unit for the purposes of the purchase restriction policy. In the case of a gift to a

minor, the donee is not subject to such a restriction.

In addition, the author is of the view that determining whether property disposed of by a donor is community property is a question of conflict of laws. According to Chinese law

concerning community property, where there is a foreign element and the client has made no choice of law, the law of common habitual residence applies or, failing that, the law of the country of common nationality.8

TRANSFER

As a legal expert, a notary often needs to give legal advice and guidance to clients in addition to handling the purely notarial aspects of the transaction. As an adjunct to their notarial role,

handling the transfer (change of ownership) at the real estate exchange centre is a very important aspect of the notary’s work. The significance of the

8  art.24 of the Law on the Application of Foreign-related Civil Legal Relationships: As for the property relationship between husband and wife, the parties concerned may, upon agreement, choose to apply the laws of the habitual residence of one of the parties, the laws of the country of nationality of one of the parties, or the laws of the place where the principal property

is located. If the parties failed to make such a choice, the law of the common habitual residence shall apply; if there is no common habitual residence, the laws of the country of common nationality shall apply.

 

 

‘In the case of a sale, the principal taxes and fees payable by the seller of the property include VAT and personal income tax, while the buyer is responsible for the deed tax and property tax’

 

 

 

notarial certificate becomes apparent only when it is accepted by the real estate exchange centre where the real property is located and serves as a basis for the transfer of title.

At the time of writing, there are 16 administrative districts in Shanghai9 and 16 corresponding real estate exchange centres. Inevitably, apart from

the provisions of laws and regulations, real estate exchange centres differ from each other in some specific practices, causing confusion among clients.

Taking gifts as an example, the Regulations of Shanghai Municipality  on  Registration  of  Real Estate stipulates that, following a gift, registration of the transfer must take place.10 In legal terms, this is interpreted as follows: the donation contract comes into effect upon signature by the parties concerned, but the transfer of ownership is not completed until the transfer of the real estate title.11 As mentioned above, a gift may involve one of two procedures: either a donation contract, or a donation form and acceptance form. The specific procedures for transfer are different in each case.

It should be pointed out that the main legal basis on which the real estate transaction centres in Shanghai handle real estate transfers is the Regulations of Shanghai Municipality on Registration of Real Estate, which do not require

examination of the applicant’s marital status, while the main legal basis on which the notary handles

9  Baoshan, Changning, Chongming, Fengxian, Hongkou, Huangpu, Jiading, Jing’an, Jinshan, Minhang, Pudong, Putuo, Qingpu, Songjiang, Xuhui and Yangpu.

the notarisation of gifts and other matters are the General Principles of Civil Law of the People’s Republic of China, the Contract Law, etc., which generally adopt the opposite approach.

TAXATION

1.   General requirements

According to the latest laws and regulations of Shanghai on real estate transactions, in the case of a sale, the principal taxes and fees payable by the seller of the property include value-added tax (VAT) and personal income tax, while the buyer is responsible for the deed tax and property tax. The above taxes vary according to circumstances and distinguish between ordinary and non-ordinary real property.12 If the sale occurs less than five years from the date of the previous transaction, the seller and the buyer together pay taxes of up to about 10 per cent of the total transaction amount.

In the case of transfer by means of gift, provided certain conditions are met, the main tax is only the deed tax, payable by the donee.13 Even if the notary fee is included, the total cost will only amount to about 4 per cent of the corresponding value of the property transferred, over 50 per cent less than the cost arising on a sale.

2.   Special requirements

•  If the donor and the donee are not close relatives,14 they are subject to additional personal income tax and VAT.

10  art.30 of the Regulations of Shanghai Municipality on Registration of Real                                                                                         

Estate: in relation to registered real estate, in any of the following cases, the parties must apply for transfer registration after the relevant legal document has come into effect or after the occurrence of the relevant fact: (1) sale;

(2) exchange; (3) gift; (4) inheritance, will; (5) other situations stipulated by law. 11  art.9 of the Property Law: the establishment, alteration, transfer and extinction of a real property right in rem shall take effect upon registration

in accordance with the law; it shall not take effect without registration, unless otherwise stipulated by law. art.10: real estate registration shall be handled by the registration authority at the place where the real property is located. art.15: where the parties entered into a contract concerning the

establishment, alteration, transfer and extinction of a real property right in rem, the establishment, alteration, transfer and extinction shall take effect upon formation of the contract, unless otherwise provided for by law or otherwise stipulated in the contract; if the real property right in rem is not registered, it shall not prejudice the effect of the contract.

12  Specific documents can be found at blog.sina.com.cn/zhangzhengnotary 13  For details, please refer to (II) of the Notice of the Ministry of Finance and the State Administration of Taxation on Relevant Issues Concerning Strengthening the Tax Management of Individuals’ Gratuitous Gift of Real Property in Real Estate Transaction (G.S. F [2006] No. 114)

14    Specifically refers to: spouse, parents, children, grandparents, maternal grandparents, grandchildren, maternal grandchildren, brothers and sisters. For details, please refer to Notice of the Ministry of Finance and the State Administration of Taxation on the Individual Income Tax Issues Concerning Individual House Property Obtained as Gratuitous Gift (C. S. [2009] No. 78): ‘In the case of gratuitous gift of residential property title under the following circumstances, no individual income tax shall be levied on the parties concerned: (I) The owner of the residential property grants the title of the property as gift to his/her spouse, parents, children, grandparents, maternal grandparents, grandchildren, maternal grandchildren, brothers and sisters.’

The donor is not prohibited from giving their property to whomever they wish. However, if the donor and the donee are close relatives, the only tax is the deed tax payable by the donee, thus reducing the cost significantly.

•  Taxation issues concerning the sale of real property gifted.

As mentioned above, in the case of a sale of real property, the seller and the buyer are required

to pay the personal income tax, VAT, deed tax, property tax, etc. according to their respective liability. According to the real estate regulations,15 where a seller of real property acquired that property by way of gift, they are subject to individual income tax on the sale price at the rate of 20 per cent. This 20 per cent individual income tax may be avoided only if two conditions are satisfied simultaneously: first, that at least five years have elapsed since the individual acquired the property, and second, that it is the individual’s sole real property.16

IMPACT OF THE CONVENTIONS AND CONCLUSION

The private international law conventions relevant to this topic are the Hague Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of  Testamentary  Dispositions17  and the Hague Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition.18 These conventions apply only to the Special

Administrative Region of Hong Kong, as a result of the extension to the former Crown colony made by the UK. When Hong Kong was restored to China on 1 July 1997, China declared that the conventions would continue to apply for Hong Kong.

Subsequently, China enacted the Trust Law of the People’s Republic of China in 2001 and the

Law of the People’s Republic of China on the Laws

 

15   Above notes 13 and 16

16    For details, please refer to Notice on Issues Concerning the Collection of Individual Income Tax on the Proceeds from the Sale of Individual Housing (C.

S. Z. [1999] No. 278): ‘The proceeds from transfer of an individual residential

Applicable to Foreign-related Civil Relations in 2010, which made specific provisions to deal with the increasing number of foreign inheritance, wealth management and other issues. A number of academics, in discussing the potential impact of the conventions, have called on China to accede at an early date.

I have mentioned that the notary is an expert in law. Accordingly, clients do not turn to a notary only where pure notarial services are required.

More often than not, they hope the notary can intervene in advance, providing a package service covering advice, planning, the formalities of

the transfer itself, tax payments and the other procedures that follow completion of notarisation.

Fortunately, most of our colleagues have already accepted this challenge, but it is unrealistic to expect them to handle all matters on behalf of clients on their own.

On the one hand, China has a vast territory and a large population. There are great differences in the requirements of notarial offices, real estate transaction centres and taxation authorities

in different parts of the country. On the other hand, new laws and regulations are introduced constantly and these vary greatly.

Many overseas clients holding identification documents issued by their home authorities, whether in the UK or elsewhere, will choose to execute their documents locally. After

notarisation, the documents require legalisation by the competent Chinese consulate. In the UK, notaries and other legal professionals have played an important role in guiding and assisting clients in handling China-related transactions, working with notaries and professionals in Shanghai

and other cities in China to address the needs of clients.

ZHENG ZHANG IS A SENIOR NOTARY AND DEPUTY DIRECTOR OF SHANGHAI JING’AN NOTARY PUBLIC OFFICE19

property which has been occupied by the owner for more than 5 years and is                                                                                                        

the family’s only residence continue to be exempted from individual income tax’. ‘Occupied by the owner for more than 5 years’, as mentioned in the above document, refers to the time period between the purchase of the property and the transfer of the property.

17   bit.ly/2z9YoMh, accessed 4 August 2019.

18    bit.ly/2keQAVG, accessed 4 August 2019.

19    Very special thanks to Nigel Ready, scrivener notary, for his great support in providing insightful comments and editorial suggestions, and for his professionalism and knowledge of notarial practice. Without his kind  support, this article could not have been completed.