A number of Chinese couples with two properties are laughing all the way to the bank -- after making a pit-stop at the country’s registration offices to get divorced.
The reason? A loophole in China’s tax laws – one that appears to be wide enough to drive a proverbial truck through – is allowing some couples to skirt a new (and widely reviled) sales tax on home sales.
Here’s how the legal tax avoidance scheme works:
1. Spouses head over to the government’s marriage registration office and file for divorce. Typically, divorce in China is not handled through the court system, unless it's contested.
2. Once the divorce is granted, they put one house in each person’s name.
3. The formerly-married couple sell one or both homes.
4. They avoid the above-noted new 20% capital gains tax on profits from selling residential property.
5. They get remarried.
6. (Optional) They pay for their second honeymoon from the money they saved.
What makes the tax loophole all the more odious for Chinese officials, is that the country is trying to stem rising divorce rates. 2.87 million spouses untied the knot in 2011, which was up over 7% from 2010. In fact, one Chinese company has decided to ban divorce among its employees.
However, despite the hope that these couples will indeed remarry after they take advantage of the tax loophole, some official aren’t so sure.
“Some men might trick their wives into getting a divorce using the tax as an excuse. But they might have a mistress and truly want a divorce,” He Zhanbiao, an employee of Shanghai ’s civil affairs bureau, told the Shanghai Daily.
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