The article reflects the legal and tax implications surrounding the transfer of property ownership in China, particularly in cases where ownership is confirmed through litigation due to historical non-registration.

Chinese tax authorities determine the "holding period" of a property—which affects eligibility for tax exemptions—based on the earlier date between the issuance of the property ownership certificate and the deed tax payment certificate. In situations where these documents are unavailable due to disputes, the effective date of a court judgment confirming ownership is used as the starting point for calculating the holding period.

Recently, the author handled a case involving the confirmation of real property ownership through litigation, triggered by a developer's bankruptcy. In 1995, the purchaser signed a Commercial Housing Sales Contract with a developer in Shanghai to purchase a property for approximately RMB 100,000. The purchaser paid the full purchase price and took possession of the property. However, due to the developer's business license being revoked and subsequent bankruptcy, the property title was never formally transferred. As of 2024, title registration remained outstanding.

Intending to sell the property, the purchaser engaged the author to obtain legal ownership through litigation. In late 2024, the court ruled in favor of the purchaser, ordering the developer to assist in completing the real property registration. In January 2025, with the author's assistance, the purchaser and the developer completed the registration at the real estate registration center. The purchaser paid deed tax and received a property ownership certificate.

The purchaser then inquired whether the sale of the property to a non-lineal relative could be exempt from individual income tax (IIT) and value-added tax (VAT).

Under current Chinese tax policy, VAT may be reduced or exempted for individuals selling residential properties held for at least two years (previously, business tax applied). For IIT, sales of self-used residential properties held for over five years and serving as the family’s only residence are exempt.

Specifically:

• IIT: According to Circular Cai Shui Zi [1999] No. 278, Article 4, income derived from the sale of a self-used residential property that has been held for more than five years and is the sole residence of the household is exempt from individual income tax.

• VAT: Pursuant to Circular Cai Shui [2016] No. 36 and its Annex 3 on transitional policies for the VAT reform, individuals selling properties held for less than two years must pay VAT at a 5% rate on the total sales price. Properties held for two years or more are exempt from VAT. In Beijing, Shanghai, Guangzhou, and Shenzhen:

  - Sales of non-ordinary housing held for at least two years are subject to VAT on the margin (sales price minus purchase price) at 5%.

  - Sales of ordinary housing held for at least two years are exempt from VAT.

On November 12, 2024, the Ministry of Finance and two other agencies issued a new announcement clarifying that if cities such as Beijing, Shanghai, Guangzhou, and Shenzhen eliminate the distinction between ordinary and non-ordinary housing, a unified national policy will apply. As such, all residential properties held for two years or more are VAT-exempt.

On November 18, 2024, the Shanghai Municipal Housing and Urban-Rural Development Commission announced the cancellation of the ordinary/non-ordinary housing classification.

Therefore, to qualify for VAT exemption, the property must have been held for at least two years. For IIT exemption, the term "self-used for over five years" has been interpreted by the State Taxation Administration (STA) in Circular Guo Shui Fa [2007] No. 33 as referring to the time elapsed from the purchase to the transfer, rather than actual usage. Thus, the "holding period" is crucial to determining eligibility for exemption.

In the purchaser’s view, having lived in the property for nearly 20 years satisfies the requirements. However, regulatory interpretation of "holding period" may differ. Since 2005, China has implemented integrated tax administration for real estate, applying a "certificate-first, tax-later" policy. The STA assesses tax benefits based on the earlier of two dates: the issuance date of the deed tax payment certificate or the property ownership certificate.

This principle is found in:

• Circular Guo Shui Fa [2005] No. 89, which defines the purchase date as the earlier of the dates on the deed tax certificate or the property title.

• Circular Guo Shui Fa [2005] No. 172, which further confirms this "whichever is earlier" principle.

• Circular Guo Shui Fa [2007] No. 33:

  - For public housing purchased under housing reform, the purchase date is determined based on the effective date of the purchase contract, the issuance date of the receipt, or the date on the ownership certificate, whichever is earlier.

  - For other housing, the purchase date is determined by the earlier of the dates on the ownership certificate or deed tax payment certificate.

  - The date of transfer is the date on the sales invoice.

Accordingly, the period between the determined purchase date and the date of sale forms the basis for evaluating eligibility for tax exemptions.

To address cases where title certificates could not be obtained in time due to ownership disputes, the STA issued Announcement No. 8 [2017], stating that if a legally effective court judgment or arbitral award confirms the purchase, the effective date of that legal document shall be deemed the purchase date.

Because tax exemption policies for housing transfers are preferential in nature, eligibility is governed strictly by normative documents issued by the Ministry of Finance and the STA with State Council approval. The key condition for exemption is the holding period, which must be determined based on formal guidance. This ensures policy continuity and promotes taxpayer compliance, while preventing inconsistent standards that could undermine tax administration.

Returning to the present case, although the purchaser had occupied the property for years, ownership registration had not occurred until the court judgment and subsequent registration in 2024–2025. The court also emphasized that the purchaser’s claim was contractual (performance of agreement) rather than proprietary (asserting ownership), as real property rights arise only upon registration. Under the principle distinguishing property rights from contractual rights, prior to registration, the purchaser only held a contractual right to compel the developer to register the title but did not own the property in legal terms.

Therefore, only after completing registration in early 2025 and obtaining the deed tax certificate could the purchaser be considered to have "purchased" the property for tax purposes. As such, the property holding period would not meet the required thresholds of five years for IIT exemption or two years for VAT exemption. Consequently, the transaction would not qualify for the relevant tax exemptions.