Taxpayers operating renting or buying and selling properties may transfer unterminated leases from old tenants to new tenants, and the tenants may pay the taxpayers a lump-sum premium. The top-of-the-line lease fee is actually operational and is subject to profits tax. However, according to accounting standards, the top-of-the-line fee must be apportioned according to the tenure of the lease, and accordingly, profits tax is levied accordingly. On the other hand, the premium received by taxpayers will also be assessed in accordance with the property tax regulations, but it is stipulated that the premium can only be apportioned for a maximum of 36 months. If the levy fee is indeed double-assessed for profits tax and property tax, the taxpayer can apply for the property tax paid to offset the tax already paid because the levy fee has been charged to profits tax. If the property tax cannot fully offset the profits tax, the tax bureau will refund the overpaid property tax to the taxpayer.
Example: An old tenant transfers an unterminated lease to a new tenant. Company A, as the landlord, charges a lump sum fee of $600,000. The lease term is 4 years. According to the general accounting standards, the top-tier fee will be divided evenly over 48 months according to the lease period. Therefore, the annual top-tier fee income is subject to profits tax of $150,000, and the part of the excess top-tier fee income The additional profits tax calculated (assuming that A’s 4 annual profits are all less than $2,000,000 and calculated at the tax rate @8.25% and 4 years have been reduced before) is = $150,000*8.25%=$12,375. 4 years The total profits tax required to be paid is $12,375*4=$49,500. The top-of-the-counter fee of $600,000 collected by Company A will also be subject to property tax. However, the tax regulations stipulate that under the property tax, the top-of-the-counter fee can only be apportioned for 36 months. Therefore, each year’s top-of-charge income should be charged The property tax is $200,000, and the additional property tax calculated for the extra premium income is $200,000*80%*15%=$24,000. A total of $24,000*3=$72,000 must be paid for the property tax for 3 years. Company A The property tax has been paid. Since the annual profits tax of $12,375 calculated for the first three years is $11,625 less than the property tax of $24,000, Company A can apply for the property tax to be offset against the profits tax in the first three years, so that it can get a refund of the property tax of $24,000-$12,375=$11,625 each year. As for A, there is no need to pay property tax in the fourth year, but only $12,375 in profits tax.
The above information is for reference only. If in doubt, we welcome your tax inquiries