《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.
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