Foreign Succession in China

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Expatriates with China assets should consider making a will in Chinese

Jan. 7 – With the increasing number of expatriates coming to China over the last few years to live and work, issues concerning succession in terms of divorce and death are slowly becoming more common – especially for those who have developed a business or have purchased property in the country.

While divorce law is a particular subject in itself, the basic distribution of assets held in China is the same for succession. In China, the term refers to one of two situations:

  • Chinese nationals inheriting legacies (property, assets) or gifts from foreigners in China or from overseas;
  • Foreigners inheriting legacies or gifts from Chinese nationals or overseas Chinese.

These circumstances are covered by China’s “Civil Law General Principles of Laws of Succession” and are generally presided over by the People’s Court where the bulk of any legacy is located, or alternatively, the domicile of the deceased. However, in circumstances where the legacies are overseas, the Chinese courts have no jurisdiction.

In China, laws governing property vary somewhat from region to region and the local laws are deemed to apply. A comprehensive breakdown of China’s Civil Law dealing with these matters can be found here.

The main issues concerning inheriting legacies in China are of tax and duty. Real property assets transferred from the deceased are not subject to individual income tax, only deed tax. This tax is defined as follows:

The purchasing or acquisition of land and/or buildings are subject to deed tax.

The transfer of ownership of land and building refers to:

  • The granting of land-use right by the state (not including the transfer of management right of the rural collective land)
  • Transfer (including selling, bestowal and exchange) of land use right
  • Sale and purchase of buildings
  • Bestowal of buildings
  • Exchange of buildings

Deed tax is levied depending upon circumstances and local regulations at rates of between 1 percent and 5 percent of the total asset value.

However, should the individual wish to transfer on these assets to other parties, IIT is applicable. Currently China does not impose estate or inheritance taxes.

Expatriates holding assets in China are advised to make provisions, in Chinese language pertinent to Chinese civil laws, through a legally-mandated will to define the distribution of China-based assets in the event of any misfortune, and to include this as part of any larger international legacy.

Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.

For further details or to contact the firm, please email china@dezshira.com, visit www.dezshira.com, or download the company brochure.

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