By Hung Ou Yang and Cheng-Yu Ma
In Taiwan, whenever there is a transfer of the land, whether it is through the method of purchasing or gifting, the "land value increment tax" must be paid. Therefore, in real estate transactions, it is essential to consider this tax as a factor before the transaction. We have summarized some common questions and their answers about the tax as below.
Q 1. What transaction triggers the land value increment tax?
The land value increment tax must be levied when there is a transfer of land ownership involved. In other words, whenever the land owner sells or transfer his/her land as a gift, the land value increment tax must be paid.
Q 2. Who is responsible for paying the land value increment tax?
There are two different scenarios. When the land transfer involves payment (e.g., sales), the original landowner is responsible for paying the land value increment tax. On the other hand, when the transfer is made in the absence of payment (e.g., gifts), the recipient of ownership is responsible.
Q 3. How is the land value increment tax calculated?
Firstly, the Taiwanese government sets a value for every piece of land in Taiwan. The value is called "assessed present value" or "assessed current land value" (in Chinese: 公告現值), which apparently does not necessarily reflect the market value of the land. In fact, such value set up by the government is always much lower than the market value. The calculation of the land value increment tax is based on the amount by which the assessed present value of the land has increased compared to the previous transfer, with tax rates ranging from 20% to 40%. More than that, in terms of calculation, there will be various adjustment factors to be considered, such as the duration of landowner's ownership. Tax experts generally can give clients an estimation on the land value increment tax based on information revealed publicly by the authority.
Q 4. Is land value increment tax required when gifting land to a spouse?
Pursuant to Article 28-2 of the Land Tax Act, land gifted between spouses can be exempted from the land value increment tax. However, this exemption does not mean the land value tax is entirely and permanently waived. As a matter of fact, the tax is just deferred until the land is transferred again. For example, when a wife who gets a land gifted by her husband sells the land to a third party, the land value increment tax will be imposed. In addition, to apply for the exemption under Article 28-2 of the Land Tax Act, you should request the tax bureau to issue a certificate, proving the gift tax exemption as a prerequisite.
Q 5. What is the "One Home for a Lifetime" policy?
You might probably have heard of the "One Home for a Lifetime" (in Chinese: 一生一屋) policy but do not know how it works. Put it simply, when a landowner sells its residential land, and the land area does not fall into the scope of certain limits, the land value increment tax rate will be able to be reduced to 10%. Since the policy's benefits can only be applied for on a one time basis, it is commonly known as "One Home for a Lifetime". However, it is important to note that due to an amendment to Article 34 of the Land Tax Act, if the landowner sells residential land use again, the landowner can still enjoy the 10% preferential tax rate if certain conditions are met, such as, among others, not owning any other houses besides the one on the land being sold, holding the land for at least 6 years before selling, and not using the land for profit-seeking purpose within 5 years prior to the sale.
Q 6. What happens if you fail to pay the land value increment tax?
In most cases, the transfer of land ownership registration in Taiwan is only allowed after the land value increment tax has been paid. That is to say, the likelihood of evading this tax is quite low. However, in a unique situation where a land re-sale occurs after the completion of the previous purchase but before the transfer of ownership is registered, a fine equal to 2% of the reselling value shall be imposed, according to Article 54, Paragraph 2 of the Land Tax Act.
To sum up, the land value increment tax is a crucial consideration in real estate transactions in Taiwan. Whether you are investing in Taiwanese real estate or planning for wealth transfer, it is essential to pay close attention to this tax.
AUTHOR: Hung Ou Yang
Managing Partner
Taipei
+886-2-2707-9976
[email protected]
AUTHOR: Cheng-Yu Ma
Attorney
Taipei
+886-2-2707-9976
paul@btlaw.com.tw
Copyright Brain Trust International Law Firm
Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.
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