How can foreigners inherit assets within China?

Gang Li

(W. Ye Law Firm)

Introduction: How Chinese with foreign nationality inherit and dispose of assets in China is a question that clients often consult our firm in practice. In order to provide effective guidance to clients, we hereby invite Lawyer Gang Li, a senior consultant at W. Ye Law Firm in Canada and Director of Guangzhou Kingpound Law Firm, to write this article and further explain. Mr. Li has extensive experience in foreign-related inheritance practice for many years and maintains close cooperation with our firm, providing one-stop services to Chinese Canadians and assisting clients in dealing with numerous cross-border inheritance issues.

CASE 1：

Chinese national A, who immigrated abroad in his early years, has been permanently residing overseas and has obtained foreign nationality. He returns to China to visit his parents and sister B only every few years. Many years later, A's parents in China pass away one after another, leaving behind the property where they resided to be inherited by their children. According to Chinese inheritance law, both A and B are heirs to their parents' estate. B needs to notify A to return to China to handle the inheritance procedures for the property. A returns to China and, together with B, handles the inheritance and transfer procedures for the property. However, A and B do not wish to jointly own the property and fail to reach a compensation agreement, so they decide to sell the property and distribute the proceeds.

CASE 2：

Overseas Chinese national A, who holds foreign nationality, invested in and purchased an apartment in China in the early years, which was initially used for self-occupation and later rented out. A passed away in an accidental incident. According to Chinese law, A's wife and children are the heirs to the apartment located in China. A's wife and children need to jointly come to China to handle the inheritance procedures for the property, sell the property after its transfer, and remit the proceeds out of China.

In the above cases, the clients encountered the following issues:

1. Inheritance of property involves two or more heirs, and if the heirs disagree on the inheritance and disposition of the property, how should it be handled? Since the property is located in China, the inheritance of this property needs to comply with Chinese law. Foreign lawyers may not be able to provide accurate legal advice on the Chinese laws involved in the inheritance of this property.

2. During the process of handling property inheritance, clients need to provide proof of the relationship between the heirs and the deceased recognized by the Chinese government. Clients should consult the real estate registration department in the locality where the property is located to understand the specific requirements.

3. Without a legally authorized agent in China, clients need to personally return to China to handle the procedures for property inheritance and disposition in the location where the property is situated. This process typically involves several months of waiting time.

I. Services provided by Chinese lawyers

1) Conduct property rights investigation on the properties involved in the case to verify their ownership status；

2) Provide legal advice and recommendations on the client's inheritance rights and disposal plans in accordance with Chinese law；

3) Assist clients in reaching agreements with other heirs regarding the inheritance and disposition of the property；

4) Assist clients in handling the notarization and authentication procedures for identity proof, proof of inheritance relationship, and power of attorney required for inheritance and disposition of property in foreign countries；

5) Represent clients in handling the inheritance and transfer procedures for the property at relevant government departments in China；

6) Represent clients in selling the property in China and, if requested by the client, collect the proceeds from the sale of the property；

7) Represent clients in China to declare and pay relevant taxes, and remit the remaining funds to the client's designated overseas bank account。

II. Process

(1)Property inheritance process

The general process for foreign-related inheritance of property in China is as follows (the specific details and requirements within the process need to be analyzed based on the specific case):

Step 1: Prepare the necessary documents for the inheritance process, depending on the specific circumstances of the case, including but not limited to identification documents, relationship proof, property documents, etc. Draft inheritance declaration documents, renunciation of inheritance declaration documents, power of attorney documents, and if necessary, other declaration or explanatory documents that comply with Chinese government requirements. (This may involve inquiries or data retrieval from relevant Chinese government departments.)

Step 2: If the relevant documents mentioned in the first step are generated outside the People's Republic of China (including Hong Kong, Macau, and Taiwan), then these documents need to undergo notarization and authentication procedures in the country or region where they were issued (documents generated in Hong Kong, Macau, and Taiwan need to undergo notarization and transfer procedures).

Step 3: According to the requirements of the competent government departments or institutions handling property ownership transfer procedures, apply for notarization documents such as inheritance notarization certificates, gift notarization certificates, and testament notarization certificates at the Chinese notary institution in the location of the property (for inheritance of real estate, notarization certificates may not be necessary, but relevant announcement procedures need to be conducted according to the requirements of the competent government departments or institutions).

Step 4: With the aforementioned qualified documents, proceed to the tax department to handle tax exemption/payment procedures, and then go to the relevant competent government departments or institutions to complete the procedures for property inheritance (changing ownership registration). At this point, the process for property inheritance is completed.

(2)Property Disposal Process

After the heir inherits the property in China, he/she may be unable to manage the property due to distance, time, cost, energy and other reasons. If you need to entrust a Chinese agent to dispose of inherited property, you can follow the following process:

Step 1: The heir obtains a power of attorney in their home country to authorize a Chinese agent to dispose of the property. This power of attorney needs to undergo notarization and authentication procedures (documents generated in Hong Kong, Macau, and Taiwan need to undergo notarization and transfer procedures).

Step 2: The Chinese agent handles the procedures for managing, transferring, selling, or disposing of the property according to the power of attorney. This includes, but is not limited to, communicating with relevant government departments, processing registration and filing procedures, signing relevant contracts and agreements with other parties (such as lease agreements, property sales contracts, etc.), and applying for transfer (change of registration) procedures.

Step 3: If there are any taxes or fees related to the management, transfer, sale, or disposal of the property, the agent handles the procedures for tax payment and fee payment on behalf of the heir, completing all necessary procedures for transfer (change of registration).

Step 4: If the proceeds from the disposal of the property need to be transferred to another account designated by the heir outside of China, the agent assists the heir in transferring the proceeds to the overseas account in accordance with the law after completing tax filing procedures with the tax authorities.

III. Costs for handling property inheritance and disposal

(1)Costs involved in handling property inheritance procedures

A. Fees for Foreign Lawyers and Notarization/Authentication: The fees for foreign lawyers to handle relevant documents and notarization/authentication procedures (specific fees depend on the charges of lawyers and government departments in the respective country where the procedures are conducted).

B. Fee for Chinese Lawyer Representation: Generally, the fee for each property inheritance procedure is between 30,000 to 50,000 RMB, depending on the specific workload (discounted rates may be provided for larger estates). For cases with historical legacy issues, additional lawyer fees may be incurred depending on the specific work requirements.

C. Legal Fees: The expenses incurred by lawyers in handling the inheritance procedures, including costs for obtaining evidence, transportation, accommodation outside the urban area of Guangzhou, document retrieval, photocopying, faxing, long-distance calls, announcement, public notice fees, and other third-party expenses advanced by the lawyer and reimbursed by the client on an actual-cost basis.

D. Chinese Notarization Fees: Including inheritance notarization fees and gift or testament notarization fees (if applicable), the notary office generally charges 1% of the assessed value of real estate or the value of movable property for inheritance notarization fees and 2% for gift or testament notarization fees.

E. Transfer Taxes and Fees: For property transfer registrations, inheritance registrations only involve survey fees, evaluation fees, registration fees, and administrative fees, typically totaling within approximately 2000 RMB. For gift or testament registrations, deed taxes need to be paid (charged at 1%-3% of the assessed value depending on the property) as well as stamp duties (usually calculated at 0.05% of the received value).

(2)Costs involved in handling property disposal procedures

A.   Government Department Fees: Different disposal matters involve different fees. For example, in the case of house leasing, there are registration fees for leasing and rental income tax. In the case of house sales, there are deed taxes, personal income taxes, stamp duties, transfer fees, and so on.

B.   Lawyer Representation Fees: Depending on the specific matters, for example, in property leasing management, the agent fee is typically charged at 20% of the rental income; for property transfers, it is generally calculated at 3% of the proceeds from the property transfer.

IV. Documents required for handling property inheritance and disposal

The specific documentation required for handling property inheritance and disposition varies depending on the specifics of each case. In general, necessary documents include identification materials for the heir and the deceased, relationship proof materials, property documentation, etc.

The above is an overview of legal services for inheritance and disposition of foreign-related assets within China. Each case may have unique circumstances that require differentiated handling. After understanding and analyzing the specific situation, we will provide clients with specific feasible solutions and accurate quotations.