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A History of Divorcing to Evade Tax in China

Mar 22, 2013
Translated by Chen Anqi

Officials in Beijing are reported to be looking for ways to make it more difficult for single and divorced people to buy second homes in the capital.

This follows reports of a jump in the number of divorces in some Chinese cities since the State Council announced a series of new housing policies earlier this year.

Both domestic and foreign media have reported on the phenomenon with the New York Times publishing an article that noted the spike in the number of divorce filings in some districts of Shanghai and in Nanjing and Wuhan.

The EO also reported on the issue. In this week's paper there is an article in which our reporter interviews a couple in Beijing who are considering divorcing in order to avoid the tax.

In order to help readers better understand why anyone would seriously consider getting a divorce in order to save some money, we offer this brief outline of the dilemma facing Ms. Ma in Beijing.

Included in a new policy initiative aimed at keeping a lid on housing prices which were announced by the State Council in early March, was a clause that local governments should collect a 20 percent tax on the profits earned from the sale of a second house.

Whether to file for divorce has become a big concern for Ms Ma, a Beijing resident. She and her husband have two houses in Beijing, both bought at relatively low prices. They want to sell one of the houses and buy another in a "school district". Their first house was bought for one million yuan and is now estimated to be worth about 5 million yuan. The couple's second property was bought for less than 800,000 million and is estimated to be worth 2.8 million.

According to Ms. Ma, once the new measures take effect, if they sell their more expensive house, they'll have to pay 800,000 yuan in taxes. If they sell their other property, the municipal government will require them pay 400,000 in capital gains tax.

If the couple file for a divorce and spilt the properties between them, it seems they can avoid paying any tax at all if one of them chooses to sell the house.

Ms Ma told the EO that she's not sure what she's going to do

According to Professor Xie from Fudan University, the "fake divorce" phenomenon firstly appeared in 2009, when couples tried to avoid paying much higher interest rates on mortgages taken out for the purchase of second homes.

"This is quite reasonable. It's not surprising that a family should possess two houses. The child needs to get married."

Links and Sources
Economic Observer: 假离婚演变史
Caixin: Capital Takes Aim at Fake Divorces
New York Times: In China, Checklist for a Home Seller: First, Get a Divorce


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