On 29 december 2025, the ministry of finance and the general directorate of state taxes issued a joint bulletin on the value added tax policy for individual sales of housing (official gazette no. 17 of 2025 of the general directorate of taxes of the ministry of finance), specifying that since 1 january 2026, the value added tax policy for individual sales of housing has undergone major adjustments。
The new policies are:
:: housing holdings for less than two years: at the time of external sales, vat is paid in full at the rate of 3 per cent (previously 5 per cent)。
* holds housing for more than two years (including two years): vat is exempt from foreign sales。
The old policy (after the battalion was upgraded in 2016 to the end of 2025):
:: holds housing for less than two years: vat is paid in full at a 5 per cent rate for external sales。
:: housing holding for more than two years (including two years): vat exemption for foreign sales。
:: there are special rules in four front-line cities: beijing, shanghai, guangzhou and shenzhen: sale and purchase of non-general housing for more than two years, paying vat at a rate of 5 per cent。
The most immediate effect of this policy adjustment, on the surface, was a significant reduction in the cost of second-hand house transaction taxes. The reduction in the vat collection rate from 5 per cent to 3 per cent has significantly reduced the cost of selling short-term holdings, helped to improve the efficiency of the distribution of housing sources and activated the second-hand housing market。
By reducing the transaction costs of second-hand houses, the policy made possible the replacement chain of "selling old and buying new". When the cost of selling old houses is reduced, the landlord is more able and willing to sell old houses and then buy new ones, which will facilitate the upgrading and development of the whole real estate market。
Another major change was the new policy that eliminated the differentiated policies of the four front-line cities of beijing, shanghai, guangzhou and shenzhen, and achieved national harmonization. This adjustment reflects the legislative spirit of tax legislation and simplification of the tax system, reducing the collection rate and the complexity of collection。
The restructuring was an important step in implementing the vat law. Following the introduction of the vat law on 1 january 2026, small taxpayers applied a 3 per cent collection rate, consistent with the policy of vat for personal sales of housing, reflecting the legislative spirit of tax legislation and simplified tax systems。
However, it is a matter of concern that, although the tax rate has been reduced from 5 per cent to 3 per cent, the new tax is fully paid and the actual tax burden will increase significantly during the period when housing prices go down。
Assuming that someone purchased a house in beijing in 2025 at a cost of $8 million, it was sold in 2026 at a price of $7. 5 million。
Vat is paid under the old rules based on difference, vat = (sale price - original price) / (1+5%) x 5% due to sale price (7. 5 million)
Under the new regulation, vat = sale price (1+3%) x 3%, or 7. 5 million / (1+3%) x 3% ≈ 21. 84 million。
