When individuals build houses with profit-making enterprises on newly-established land and sell them separately, they should pay attention to the upper limit of transfer expenses that can be deducted when declaring the real estate tax.

If an individual builds a house together with a profit-making enterprise on land subject to the unified real estate tax system (hereinafter referred to as new land) and sells it separately, if the sale of the real estate and the land is under the same contract, and the individual fails to present documentary proof of expenses paid for acquisition, improvement and transfer when declaring the unified real estate tax on the sale of the land, the fees may be calculated at 3% of the transaction amount. The upper limit of the amount shall be amortized based on the ratio of the land transaction price to the total real estate transaction price.

The Kaohsiung National Taxation Bureau of the Ministry of Finance explained that according to the second paragraph of Article 14-6 of the Income Tax Act, if an individual trades real estate that is subject to the unified real estate tax system and does not disclose the expenses paid for acquisition, improvement, and transfer, the tax collection agency may calculate the expenses at 3% of the transaction price, subject to a maximum of NT$300,000. This amount is determined with reference to the average commission income collected by real estate service brokers for each "case". Therefore, if an individual builds a house with a profit-making enterprise on newly-established land and sells it separately, but the same contract is used to sell the real estate, and no documentary proof of expenses paid for acquisition, improvement and transfer is presented when calculating the transaction profit or loss, the total amount of expenses to be shared by the sellers (i.e. the individual and the profit-making enterprise) under the same contract shall be capped at NT$300,000.

The bureau gave an example, in which Mr. A entered into a joint construction and subsale contract with Construction Company A for newly constructed land, stipulating that the land and house price ratios were 45% and 55% respectively; subsequently, Mr. A and Construction Company A jointly entered into the same sales contract with the buyer for the real estate being traded, with the total sale price of the real estate being NT$12,000,000 (i.e., the total land price was NT$5,400,000 and the total house price was NT$6,600,000). If Mr. A did not present documentary proof of expenses paid for acquisition, improvement, and transfer when declaring the real estate tax for the sale of the land, the amount of such expenses that can be deducted is NT$135,000 (upper limit of NT$300,000 × total land price of NT$5,400,000/total transaction price of NT$12,000,000), instead of directly calculating the transfer costs based on the total land transaction price of NT$5,400,000 × 3%.

The bureau reminds the public that if they have any questions about the real estate tax system, they can call the toll-free service number 0800-000321 for inquiries, or go to the bureau's website (https://www.ntbk.gov.tw) and use the National Tax Smart Customer Service "National Tax Assistant" for online inquiries.

Provider: Nanzi Taxation Office Contact: Section Chief Zhuang Peirong Contact number: (07) 3522491 ext. 5050
Written by: Huang Ziyan Contact number: (07) 3522491 ext. 5053