Editor's Note:

Tax source management for Real Estate Tax and Urban and Town Land Use Tax covers various stages in the acquisition, development and construction, holding and use of buildings and land. Changes in ownership or land-use rights, leasing arrangements, and changes in use may also have tax implications. If an enterprise fails to collect and update tax source information in a timely manner, accurately calculate the applicable tax bases, or verify its eligibility for applicable tax exemptions or reductions, it may be required to pay any underpaid tax, together with applicable Late Payment Surcharges, and may even be subject to administrative penalties. Drawing on tax compliance cases and administrative penalty cases made public by tax authorities since the beginning of 2026, this article identifies common tax risks relating to Real Estate Tax and Urban and Town Land Use Tax and offers corresponding compliance recommendations for enterprises.

01 Strengthened Tax Administration of Real Estate Tax and Urban and Town Land Use Tax Imposes New Compliance Requirements on Enterprises

Real Estate Tax and Urban and Town Land Use Tax are important components of China's local tax system. Real Estate Tax is primarily assessed on either an ad valorem basis or a rental-income basis. Where the tax is assessed on an ad valorem basis, the tax base is the residual value of the property after a one-time deduction of 10% to 30% from its original value. Where the tax is assessed on a rental-income basis, the tax base is the rental income derived from the property. Urban and Town Land Use Tax, on the other hand, is calculated based on the actual area of land occupied by the taxpayer and paid in accordance with the applicable tax amounts prescribed by the relevant authorities.

Since the beginning of 2026, the State Taxation Administration (STA) and local tax authorities have successively published more than ten typical cases involving tax filings for Real Estate Tax and Urban and Town Land Use Tax, as well as the application of tax incentives, to guide enterprises in standardizing their tax compliance management. Publicly disclosed tax-related administrative penalty cases show that some enterprises have been found to have committed tax evasion due to issues such as inaccurate tax filings for Real Estate Tax and Urban and Town Land Use Tax. These enterprises have consequently been required, in accordance with the law, to pay the underpaid taxes, together with Late Payment Surcharges, and have also been subject to fines. These cases demonstrate that, although Real Estate Tax and Urban and Town Land Use Tax are easily overlooked in enterprises' day-to-day tax management, the related tax compliance obligations extend across various stages, including the acquisition, development and construction, holding and use of buildings and land. Changes in ownership or land-use rights, leasing arrangements and changes in property or land use may also give rise to tax implications. Failure to make the corresponding tax adjustments in a timely manner may expose enterprises to tax compliance risks.

Based on publicly disclosed tax administration practices across different regions, the administration of Real Estate Tax and Urban and Town Land Use Tax is increasingly moving towards a more data-driven, targeted and dynamic approach. Specifically, tax authorities have adopted the following measures:

First, strengthening interdepartmental information sharing. Tax authorities coordinate with departments responsible for natural resources, housing and urban-rural development, and real property registration to obtain information concerning land ownership and use rights, real estate transactions, completion and acceptance inspections, land areas and changes in land use. This enables them to keep track of changes in taxable property and land information in a timely manner and identify issues such as omissions in tax source registration and delays in tax filings.

Second, enhancing cross-tax data matching and verification. Tax authorities cross-check tax filing information for Real Estate Tax and Urban and Town Land Use Tax against tax return data for Deed Tax, Stamp Duty, Value-Added Tax and Enterprise Income Tax, as well as enterprises' financial information, including fixed assets and depreciation and amortization. Particular attention is paid to identifying risks such as underreporting the original value of real estate, inaccurate reporting of rental income, and discrepancies between the actual land area occupied and the area reported for tax purposes.

Third, expanding the application of digital tools for tax risk identification. Leveraging tax maps, risk warning models and intelligent data analytics tools, tax authorities conduct ongoing monitoring of tax source information and tax filing data relating to buildings and land. They screen for issues such as failure to file required tax returns, inaccurate tax bases, and unclear distinctions between taxable and tax-exempt properties or land. Identified issues are then addressed through risk alerts, on-site inspections and tax policy guidance, with a view to promoting timely rectification.

 

02 Tax Filing Risks Relating to Real Estate Tax and Urban and Town Land Use Tax

(1) Errors in Determining Tax Liabilities and Omissions in Tax Source Registration

1. Incorrect Determination of the Scope of Taxation for Real Estate Tax and Urban and Town Land Use Tax

Under the relevant regulations, the scope of taxation for Real Estate Tax and Urban and Town Land Use Tax covers cities, county seats, designated towns, and industrial and mining areas. In practice, some enterprises determine whether their properties fall within the scope of taxation solely on the basis of their registered addresses or administrative place names, resulting in failures to file required tax returns. For example, in a case published by the Guizhou tax authorities, a manufacturing enterprise assumed that its premises were outside the scope of urban areas because its registered address contained the Chinese character for "village." On this basis, the enterprise failed to file tax returns or pay Real Estate Tax and Urban and Town Land Use Tax over an extended period. Following an on-site inspection, the tax authorities determined that the enterprise's location actually fell within the legally designated scope of taxation. The enterprise was subsequently required to file outstanding tax returns for several years, with the total amount of tax and Late Payment Surcharges involved reaching approximately RMB 2.6 million.

Similar issues have also arisen in the administration of properties located outside an enterprise's place of registration. In one case, an enterprise registered in Gaomi owned multiple properties in Qingdao but failed to include those properties in its tax administration in a timely manner because it mistakenly believed that Real Estate Tax and Urban and Town Land Use Tax only needed to be declared at its place of registration. Enterprises should determine their tax obligations by reference to the actual locations of their buildings and land and the scope of taxation legally designated by the relevant local authorities. They should not rely solely on their registered addresses or administrative place names to determine whether tax filing obligations arise.

2. Failure to Register Tax Source Information for Real Estate Tax and Urban and Town Land Use Tax

In practice, some enterprises fail to complete the required tax source information collection and registration procedures for Real Estate Tax and Urban and Town Land Use Tax in a timely manner after acquiring buildings or land-use rights and completing the relevant title registration formalities. This may result in omissions in tax source information and failures to file the required tax returns. For example, a local tax authority used a risk identification model titled "Deed Tax Declared but No Tax Source Information for Real Estate Tax and Urban and Town Land Use Tax" to identify enterprises that had acquired real property and paid Deed Tax but had failed to complete the required tax source information collection and registration procedures and file the relevant tax returns in a timely manner. Following risk analysis and verification, the tax authorities recovered RMB 44.77 million in underpaid taxes and Late Payment Surcharges in accordance with the law.

Similar issues have also arisen in the acquisition of land. By comparing data from the "Shuijishi" system with information provided by the natural resources authorities, a local tax authority discovered that a new energy company had acquired 620,000 square meters of land but had failed to complete the corresponding tax source information reporting procedures in a timely manner. Following tax policy guidance from the tax authorities, the enterprise paid approximately RMB 400,000 in outstanding taxes and Late Payment Surcharges and proactively updated its tax source information.

These cases demonstrate that the filing of Deed Tax returns, registration of property ownership, and completion of land acquisition formalities do not necessarily mean that tax source information for Real Estate Tax and Urban and Town Land Use Tax has been collected and registered accordingly. Enterprises should strengthen information coordination between real property acquisition, title registration and the administration of these two taxes, complete the required tax source information collection and registration procedures in a timely manner, and file tax returns in accordance with the law based on the date on which the relevant tax liabilities arise. This will help prevent omissions in tax sources caused by delays in information transmission.

(2) Incorrect Determination of the Time at Which Tax Liability Arises

1. Failure to Distinguish Between Construction Arrangements, Resulting in an Incorrect Commencement Date for Real Estate Tax Filing

Under the relevant regulations, Real Estate Tax on buildings constructed by taxpayers themselves is levied from the month following completion of construction. For buildings constructed by a construction enterprise engaged by the taxpayer, Real Estate Tax is levied from the month following completion acceptance procedures. The two construction arrangements are therefore subject to different commencement dates for Real Estate Tax liability. In practice, some enterprises fail to accurately distinguish between different construction arrangements and mistakenly treat projects that they organize and manage themselves as self-constructed buildings, thereby incorrectly determining the commencement date for Real Estate Tax filing. 

For example, China Taxation News previously published a relevant case involving a financial enterprise whose office building passed completion acceptance in August 2021. However, the enterprise considered the project to be a self-constructed building and did not begin filing Real Estate Tax returns until December 2021, after moving into the office building in November of the same year and recording the building as a fixed asset. Following an investigation, the tax authorities determined that although the enterprise was the project owner, it had entered into a construction contract with a professional construction contractor and did not possess the required construction qualifications. Accordingly, the office building should be classified as having been constructed by an engaged construction contractor rather than as a self-constructed building. Under the relevant regulations, Real Estate Tax should therefore have been paid starting from September 2021, the month following completion acceptance procedures. Following guidance from the tax authorities, the enterprise paid approximately RMB 17 million in outstanding taxes and Late Payment Surcharges.

Enterprises should accurately determine the applicable construction arrangement by reviewing construction contracts, tendering and bidding documents, and information regarding the actual construction entities involved. They should then determine the commencement date of their tax liabilities in accordance with the applicable rules and ensure that Real Estate Tax is declared and paid in a timely manner.

2. Failure to File Real Estate Tax Returns in a Timely Manner After Completion and Actual Use of Buildings

Some enterprises continue to account for completed buildings under the "Construction in Progress" account for extended periods because procedures such as project cost settlement, auditing or asset handover have not been completed in a timely manner. As a result, they fail to update their Real Estate Tax source information and tax return data accordingly. It should be noted that the timing of an accounting reclassification does not necessarily determine when Real Estate Tax liability arises. In a case published by the Guizhou tax authorities, a company had ceased accumulating construction costs for its multi-purpose building project as early as October 2022, indicating that construction had been substantially completed. Several properties within the project had already been put into actual use. However, the company did not complete the reclassification of the properties to fixed assets until April 2025. Under the relevant regulations, Real Estate Tax liability arises once a property is actually put into use. An enterprise cannot delay tax filing on the grounds that the property has not yet been reclassified as a fixed asset in its accounting records. Following verification and guidance from the tax authorities, the enterprise amended its Real Estate Tax returns for the period from 2022 to 2024, involving approximately RMB 4.2 million in taxes and Late Payment Surcharges in total.

3. Failure to Timely File Tax Returns for Real Estate Tax and Urban and Town Land Use Tax on Properties Acquired Pursuant to Legal Instruments

Enterprises that acquire real property in satisfaction of debts through court rulings or other legal instruments may overlook their filing obligations for Real Estate Tax and Urban and Town Land Use Tax because title registration has not yet been completed. In practice, a local tax authority identified issues involving eight banks that had failed to complete tax source information reporting procedures and file returns for Real Estate Tax and Urban and Town Land Use Tax in a timely manner in respect of properties acquired in satisfaction of debts. This was discovered during a review of information concerning debt-settlement properties held by banks. Pursuant to Article 229 of the Civil Code of the People's Republic of China and Article 3 of Cai Shui [2008] No. 152, where a bank acquires real property in satisfaction of a debt pursuant to a court ruling, it is required to file tax returns and pay Real Estate Tax and Urban and Town Land Use Tax starting from the month following the effective date of the relevant legal instrument. The date of title registration should not be used as the basis for determining when the tax liability arises. Following guidance from the tax authorities, the relevant banks paid more than RMB 30 million in outstanding taxes and Late Payment Surcharges.

(3) Inaccurate Calculation and Reporting of the Tax Base

1. Inaccurate Calculation of the Original Value of Real Estate for Real Estate Tax Purposes

Under the relevant regulations, where Real Estate Tax is assessed on an ad valorem basis, the tax base is the residual value of the property after deducting the prescribed percentage from its original value in a lump sum. For properties subject to Real Estate Tax based on their original value, the tax shall be calculated and paid based on the original cost of the buildings, regardless of whether they are recorded under the fixed assets account in the enterprise's accounting books. Furthermore, for properties subject to Real Estate Tax based on their original value, the original value of the property must include the value of the land, regardless of the accounting treatment adopted by the enterprise. Such land value includes, among other things, the amounts paid to acquire land-use rights and the costs and expenses incurred in developing the land. Where the floor area ratio (FAR) of a land parcel is below 0.5, the land area used to calculate the land value included in the property's original value is determined as twice the building's gross floor area. In practice, inaccuracies in the reporting of the original value of real estate for Real Estate Tax purposes primarily arise in the following three circumstances.

First, failure to include land costs in the original value of real estate as required. Some enterprises account for land-use rights separately from buildings and structures and, when filing Real Estate Tax returns, use only the value of the buildings as the tax base, without including the amounts paid to acquire land-use rights or the relevant costs and expenses incurred in land development. For example, a case published in China Taxation News involved a company that accounted separately for its office building and the related land-use rights. The building was recorded at RMB 10 million, while the land-use rights were recorded at RMB 100 million. However, when filing Real Estate Tax returns, the company failed to include the value of the land-use rights in the tax base, resulting in an underpayment of approximately RMB 1.5 million in Real Estate Tax. Following tax guidance, the company voluntarily amended its tax returns and paid approximately RMB 1.65 million in additional Real Estate Tax and Late Payment Surcharges in total.

Second, failure to include ancillary facilities and supporting equipment in the original value of real estate as required. Some enterprises account only for the construction costs of the main building, while separately accounting for ancillary equipment that is inseparable from the building or supporting facilities whose value is not separately accounted for, without including such costs in the original value of the property as required. For example, qualifying ancillary facilities and supporting equipment for water supply and drainage, heating, and fire protection should be included in the original value of the property in accordance with the relevant regulations. They cannot be excluded from the tax base merely because they are accounted for separately.

During a tax risk inspection of a project, a local tax authority discovered that the value of the buildings already completed by an enterprise was significantly higher than the original value reported for Real Estate Tax purposes. After clarifying asset ownership and custodial arrangements and conducting an on-site inspection, the tax authority confirmed that the enterprise had failed to include the value of supporting facilities in the original value of the property. The enterprise was ultimately required to pay approximately RMB 85 million in additional taxes and Late Payment Surcharges.

 

Third, failure to update tax returns in a timely manner following changes in the original value of real estate. In a case published by the Guizhou tax authorities, an enterprise recorded an increase in the appraised value of its assets and adjusted their carrying amounts following a merger. However, it failed to update the original value recorded in its Real Estate Tax source information in a timely manner and continued to calculate and report Real Estate Tax on an ad valorem basis using the pre-revaluation carrying amounts, resulting in an inaccurate tax base. Following guidance from the tax authorities, the enterprise amended its tax returns and paid approximately RMB 150,000 in additional Real Estate Tax and Late Payment Surcharges.

In summary, enterprises should comprehensively identify and aggregate construction costs, land acquisition costs, and the value of qualifying ancillary facilities and supporting equipment, while monitoring changes in the original value of real estate on an ongoing basis. With respect to renovation costs and separately accounted equipment, enterprises should also assess their treatment based on the nature of the relevant items, their relationship to the buildings, and the applicable tax regulations, so as to ensure the accurate determination and calculation of the original value of real estate for Real Estate Tax purposes.

2. Inaccurate Reporting of Rental Income for Real Estate Tax Purposes

Under the relevant regulations, where a property is leased, the rental income derived from the property constitutes the tax base for Real Estate Tax purposes. In practice, enterprises face the following major Real Estate Tax compliance risks in connection with property leasing:

First, failure to report leased properties or incomplete reporting of rental income. Some enterprises fail to declare Real Estate Tax in a timely manner after leasing out their properties, or record rental income under other accounting accounts, resulting in an incomplete tax base. For example, in a case published by the Guizhou tax authorities, a local government financing platform company reported cumulative rental income from the leasing of immovable property exceeding RMB 40 million in its Value-Added Tax returns over 16 consecutive tax filing periods from January 2023 to April 2024. However, the tax base for Real Estate Tax assessed on rental income remained zero throughout the period. Following an investigation and guidance from the tax authorities, the enterprise amended its tax returns and paid approximately RMB 11 million in additional taxes and Late Payment Surcharges.

Furthermore, compared with the omission of ordinary rental income, the deliberate concealment of rental income and the filing of false tax returns present more serious legal risks. In Administrative Penalty Decision Hui Shui Yi Ji Fa [2026] No. 23, the tax authorities determined that a company had continuously entered into dual lease agreements containing inconsistent terms (commonly referred to as "yin-yang contracts") with its tenants from 2011 to 2019. The company used private accounts to conceal and split rental income, omitted or understated income in its accounting books, and filed false tax returns. These acts constituted tax evasion. The conduct resulted in total underpaid taxes of approximately RMB 10.6 million, including approximately RMB 3.5 million in Real Estate Tax. The tax authorities imposed a fine equal to 50% of the total amount of tax underpaid in accordance with the law.

Second, failure to accurately calculate Real Estate Tax separately for self-occupied and leased properties. Where the same property is used partly by the enterprise itself and partly leased to third parties, the enterprise should allocate the floor area according to the actual use of the property and apply the respective assessment methods: the ad valorem method for the self-occupied portion and the rental-income method for the leased portion. In practice, some enterprises fail to accurately account for the original value of the self-occupied portion or fully report rental income from the leased portion, resulting in an inaccurate Real Estate Tax base. For example, in Administrative Penalty Decision Wei Shui Ji Fa [2026] No. 1, a new energy company owned a data center that was partly self-occupied and partly leased to third parties. The tax authorities discovered that, when calculating Real Estate Tax on the self-occupied portion, the enterprise had failed to include the land value paid for the acquisition of land-use rights in the original value of the property. With respect to the leased portion, the enterprise had underreported rental income by approximately RMB 200,000 in 2023. These issues resulted in an underpayment of Real Estate Tax. The tax authorities determined that the enterprise had committed tax evasion and imposed a fine equal to 50% of the underpaid Real Estate Tax in accordance with the law.

Third, failure to declare Real Estate Tax during rent-free periods as required. Some enterprises believe that no Real Estate Tax is payable during a rent-free period specified in a lease agreement because no rental income is actually received during that period. However, according to Article 2 of Cai Shui [2010] No. 121, where a lease agreement entered into by the lessor and lessee provides for a rent-free period, the owner of the property is required to pay Real Estate Tax based on the original value of the property during that rent-free period.

China Taxation News previously published a relevant case involving a real estate development enterprise that leased part of its sales office premises to another company. The lease agreement stipulated a rent-free period from June to August 2022, followed by monthly rental payments from September 2022 to December 2023. The enterprise believed that no Real Estate Tax was payable during the rent-free period because it had not received any rental income and therefore failed to declare and pay the tax for that period. However, under the aforementioned provisions, the enterprise was still required to pay Real Estate Tax based on the original value of the leased property during the rent-free period. After the rent-free period expired, Real Estate Tax was to be assessed based on the rental income.

In summary, enterprises should strengthen the reconciliation of lease agreements, the actual use of properties, rental receivables and collection records, accounting records, and Real Estate Tax returns. They should accurately distinguish between self-occupied and leased portions of properties, fully report rental income, and properly account for Real Estate Tax during rent-free periods in accordance with the applicable regulations, so as to avoid inaccurate tax filings arising from inadequate management of leasing activities.

3. Inaccurate Reporting of the Actual Land Area Occupied for Urban and Town Land Use Tax Purposes

Under the relevant regulations, Urban and Town Land Use Tax is calculated based on the actual area of land occupied by the taxpayer. In practice, some enterprises fail to accurately report the taxable land area because they continue to rely on historical tax source registration data, omit land used for ancillary production and business operations, or fail to update information concerning land ownership, area and use in a timely manner. As a result, the land area reported for tax purposes may differ from the actual taxable land area. For example, in Administrative Penalty Decision Xi Shui Yi Ji Fa [2026] No. 21, the tax inspection bureau discovered through aerial measurements that a cemetery operator had reported approximately 10,000 square meters of land in 2021, whereas its actual occupied land area was approximately 13,000 square meters. The underreporting of the land area resulted in an underpayment of Urban and Town Land Use Tax. In this case, the tax authorities determined that the enterprise's relevant violations constituted tax evasion and imposed a fine equal to 0.6 times the amount of tax underpaid.

In another case, a local tax authority identified discrepancies through a tax risk screening model and found that the actual taxable land area occupied by a new energy company exceeded the area reported by approximately 460,000 square meters. Following verification, the tax authorities confirmed that the enterprise had failed to report land used for ancillary production and business operations. Furthermore, where an enterprise subdivides, consolidates or transfers land, or makes changes to its actual land use, it should also update the relevant tax source information in a timely manner.

03 Risks Associated with the Application of Tax Incentives for Real Estate Tax and Urban and Town Land Use Tax

(1) Failure to Satisfy the Eligibility and Business-Activity Requirements for Tax Incentives

Certain tax incentive policies impose specific requirements regarding eligible taxpayers and the activities that qualify for preferential treatment. Enterprises that fail to adequately verify their eligibility and whether their actual business activities satisfy the relevant requirements may improperly claim tax incentives. For example, in a case published by the State Taxation Administration, a grain purchasing and marketing company used its warehouses to store grain. However, the grain stored was not held as state reserves pursuant to an entrustment by the relevant government authorities. Instead, the company leased its warehouses to a third party for grain storage. Accordingly, the company did not meet the eligibility requirements for tax incentives applicable to state commodity reserves. It was ultimately required to pay approximately RMB 2.33 million in additional Real Estate Tax, Urban and Town Land Use Tax and Late Payment Surcharges.

In another case, a real estate development enterprise leased land designated for commercial and service uses to a building materials trader for its building materials business. The enterprise neither qualified as a professional logistics enterprise nor used the land for bulk commodity storage or supporting logistics operations. Nevertheless, it claimed the Urban and Town Land Use Tax incentive applicable to land used by logistics enterprises for bulk commodity storage facilities. Following guidance from the tax authorities, the enterprise amended its tax returns and paid the outstanding Urban and Town Land Use Tax. Before claiming tax incentives, enterprises should verify that their eligibility, actual business activities, and the uses of their buildings and land satisfy the requirements prescribed by the relevant tax policies.

(2) Buildings and Land Outside the Scope of Tax Incentives Prescribed by Tax Policies

Certain tax incentive policies for Real Estate Tax and Urban and Town Land Use Tax grant preferential treatment only to buildings and land directly used for specified business activities and meeting the prescribed use requirements. Such incentives do not automatically extend to all assets owned or used by an eligible enterprise. For example, in a case published by the State Taxation Administration, an agricultural products wholesale market leased out certain areas of its premises for business activities involving products other than agricultural products, in addition to the areas designated for agricultural products trading. However, the enterprise claimed Real Estate Tax and Urban and Town Land Use Tax incentives for the entire premises. As the areas used for non-agricultural product business activities did not meet the eligibility requirements for the relevant tax incentives, the enterprise was ultimately required to pay approximately RMB 4.8 million in additional taxes and Late Payment Surcharges for both taxes.

In another case, an enterprise included areas serving non-storage functions, such as office space and landscaped areas, within the scope of the Urban and Town Land Use Tax exemption applicable to land used by logistics enterprises for bulk commodity storage facilities. As these areas fell outside the scope of the tax incentives prescribed by the relevant policies, the enterprise was ultimately required to pay approximately RMB 1.5 million in additional Urban and Town Land Use Tax and Late Payment Surcharges. Where business premises contain areas serving both qualifying and non-qualifying purposes, enterprises should accurately determine the scope of applicable tax incentives based on the actual use and functional characteristics of the relevant buildings and land.

(3) Continued Claiming of Tax Incentives Following Changes in the Actual Use of Buildings and Land

Certain tax incentive policies for Real Estate Tax and Urban and Town Land Use Tax make the actual use of buildings and land a prerequisite for preferential treatment. Where the actual use changes and no longer satisfies the original eligibility requirements, enterprises should adjust their tax filings accordingly in a timely manner. For example, a salt and chemical group leased 25,000 square meters of salt flats to a trading company for temporary vehicle parking. As a result, the land no longer qualified for the tax exemption under the Urban and Town Land Use Tax policy applicable to salt fields and salt mines. Nevertheless, the enterprise continued to claim the relevant tax incentive. Following guidance from the tax authorities, the enterprise paid a total of approximately RMB 1.27 million in additional Urban and Town Land Use Tax and Late Payment Surcharges. Enterprises should continuously monitor changes in the actual use of their buildings and land, periodically reassess their eligibility for applicable tax incentives, and adjust their tax filings in a timely manner based on the actual circumstances.

(4) Confusion Between the Eligibility Requirements for Real Estate Tax and Urban and Town Land Use Tax Incentives

Real Estate Tax and Urban and Town Land Use Tax differ in terms of taxpayers and the eligibility requirements for tax incentives. Accordingly, the fact that a particular property or parcel of land qualifies for an exemption from one of these taxes does not automatically mean that it is also exempt from the other. For example, in a case published by the Guizhou tax authorities, properties owned by several county-level state-owned platform companies were used free of charge by government agencies and public institutions. The relevant enterprises mistakenly believed that both Real Estate Tax and Urban and Town Land Use Tax were exempt and therefore failed to file Real Estate Tax returns.

Under the relevant regulations, where a tax-exempt entity uses land held by a taxable entity free of charge, the Urban and Town Land Use Tax may be exempted in accordance with the applicable provisions. However, where the ownership of the buildings remains with a taxable enterprise, that enterprise is still required to pay Real Estate Tax in accordance with the law. The relevant enterprises were ultimately required to pay a total of approximately RMB 14.66 million in additional Real Estate Tax and Late Payment Surcharges. Enterprises should independently assess their tax liabilities and eligibility for tax incentives under Real Estate Tax and Urban and Town Land Use Tax, respectively, and avoid directly applying the preferential treatment available under one tax regime to the other.

04 Compliance Recommendations for Enterprises Regarding Real Estate Tax and Urban and Town Land Use Tax

(1) Timely Update of Tax Source Information for Buildings and Land

When an enterprise acquires buildings or land-use rights, completes construction acceptance procedures or puts buildings into use, or engages in leasing, transfers ownership, or changes the use of buildings or land, it should promptly communicate the relevant information to its finance and tax departments and verify whether tax source information for Real Estate Tax and Urban and Town Land Use Tax needs to be collected, registered or updated. For newly acquired buildings and land, enterprises should accurately determine when their tax liabilities arise by taking into account the method of acquisition, ownership status and actual use, so as to avoid omissions in tax filings resulting from delays in coordinating title registration, asset recognition in accounting records and tax reporting. In addition, enterprises should regularly reconcile their tax source registration information with the actual status of their buildings and land, and promptly update relevant information, including the original value of buildings, land area and status of use.

(2) Accurately Calculate Tax Bases and Strengthen the Review of Tax Returns

Enterprises should focus on verifying the original value of real estate, rental income and the actual area of land occupied to ensure that the tax bases for Real Estate Tax and Urban and Town Land Use Tax are complete and accurate. With respect to Real Estate Tax, enterprises should check whether land costs and qualifying ancillary facilities have been included in the original value of real estate as required. Where properties are leased to third parties, enterprises should reconcile lease agreements with actual rental income to avoid omissions or underreporting. For properties used partly for the enterprise's own purposes and partly leased to third parties, the tax bases applicable to the ad valorem and rental-income assessment methods should also be calculated separately. With respect to Urban and Town Land Use Tax, enterprises should verify the completeness of the reported land area by reference to land ownership documents and actual land occupation, paying particular attention to potential omissions of land used for ancillary production and business operations. In addition, enterprises should reconcile their tax return data for Real Estate Tax and Urban and Town Land Use Tax against relevant financial accounting records and tax filing information for other taxes, so as to identify and rectify discrepancies in tax reporting in a timely manner.

(3) Strictly Verify Eligibility Requirements for Tax Incentives and Conduct Regular Self-Reviews

Before claiming tax incentives for Real Estate Tax and Urban and Town Land Use Tax, enterprises should review the specific policy requirements to verify whether they satisfy the eligibility criteria applicable to taxpayers and qualifying business activities, and confirm whether the relevant buildings and land fall within the scope of the tax incentives. Where the same business premises contain areas used for both qualifying and non-qualifying purposes, enterprises should accurately distinguish and determine the scope eligible for preferential treatment. Enterprises already benefiting from tax incentives should also monitor changes in the actual use of their buildings and land, as well as changes in their business operations. In particular, where properties are leased to third parties or their use is changed, enterprises should reassess their eligibility for the relevant tax incentives. In addition, enterprises should regularly review the application of tax incentive policies and their tax filing practices. Where they discover that the eligibility requirements for tax incentives are no longer satisfied or that tax returns contain errors, they should promptly update their tax source information, amend the relevant tax returns and take appropriate corrective measures to prevent tax compliance risks from escalating.