Why can't my rent invoice be issued at 1%? My landlord says only 5%.
Two separate issues are tangled here. First, the 1%: real-estate leasing is explicitly carved out of the small-taxpayer 3%→1% relief, so no rent invoice can ever be 1% — that's correct and not negotiable. Second, the 5%: that was the old rule. Since the VAT Law took effect on January 1, 2026, small-scale taxpayers lease non-residential property at 3%, and individuals leasing residential housing pay 3% reduced to 1.5%. If your landlord still says "only 5%," their tax knowledge is stuck in 2025.
The current rates (from January 1, 2026)
| Lessor and property | Levy rate |
|---|---|
| Small-scale taxpayer leasing non-residential property (shops, offices) | 3% — excluded from the 1% relief |
| Individual (incl. small-scale sole proprietor) leasing residential housing | 3% reduced to 1.5% |
| General taxpayer, pre-May-2016 legacy projects (2026–2027 transition only) | May still elect 5% simplified taxation |
The 1% relief (MOF/STA Announcement [2026] No. 10) covers "transactions subject to the 3% levy rate other than sales/leasing of real estate and transfers of land-use rights." Leasing is named in the exclusion, so it stays at the full 3%.
Why everyone remembers 5%
Before 2026, the rule (STA Announcement [2016] No. 16) was: small-scale taxpayers leasing real estate paid 5%, and residential housing was 5% reduced to 1.5%. The 2026 VAT Law unified the small-taxpayer levy rate at 3% and scrapped the 5% rate for small taxpayers entirely. The 5% survives only as a two-year transition option for general taxpayers' pre-2016 legacy real-estate projects (through December 31, 2027) — not for small landlords.
So when a landlord insists on 5%, they're usually one of three things: a general taxpayer with a qualifying legacy project (legitimate, through 2027), a small taxpayer who hasn't updated their invoicing (wrong — should be 3%), or someone padding the tax line. Ask which one they are before you argue about the number.
What this means for tenants
- You can't push a rent invoice down to 1%. The carve-out is statutory. Any "1% rent invoice" would be a wrong-rate invoice.
- But you can push back on 5%. If the landlord is a small-scale taxpayer, the correct rate is 3% (non-residential) or 1.5% (residential). A 5% invoice from a small taxpayer overstates the tax — and if you're a general taxpayer, you'd be claiming input credit at the wrong rate too.
- Get it in the lease. Write the tax-inclusive/exclusive rent and the invoicing rate into the contract. Most landlord-tenant fights about this are really fights about who bears the tax, and the contract is where that gets decided.
Frequently asked questions
My landlord is an individual renting me an apartment. What rate should the invoice show?
1.5% — individuals leasing residential housing compute VAT at 3% reduced to 1.5%. If they show 5%, that's the pre-2026 rule.
Can a small company leasing offices choose the 1% relief "just this once"?
No. The exclusion isn't elective — real-estate leasing simply isn't in the 1% policy's scope. There's nothing to forgo or elect; it's 3%.
The landlord says "tax-inclusive price, I decide the rate." Is that legal?
The price is negotiable; the tax rate isn't. Whatever the contract price, the invoice must show the statutory levy rate for the transaction. If they insist on invoicing 5% as a small taxpayer, that's a wrong-rate invoice regardless of what the contract says.
Sources
- 《中华人民共和国增值税法》 (unified 3% levy rate for small-scale taxpayers, effective 2026-01-01)
- 财政部 税务总局公告2026年第10号 (1% relief carve-out for real estate; 5% retained only for general taxpayers' legacy projects through 2027-12-31; residential leasing at 3% reduced to 1.5%)
- 国家税务总局公告2016年第16号 (pre-2026 rule: 5% for real-estate leasing, 1.5% for residential)
- https://caixiaoyun.com.cn/knowledge/xiaoguimo-zengzhishui-zhinan-2026/