A new tax circular relating to the increase of the cap on
deductible advertisement and promotion fees in China's
pharmaceutical, cosmetic and beverage industries.was introduced on
31 July 2009 ("Circular"). The Circular jointly
established by the State Administration of Taxation and Ministry of
Finance, is implemented as a tax transitional arrangement and aims
to gradually adjust the industry structure from a tax perspective
and encourages qualifying manufacturers which usually allocate a
big advertising budget to consolidate and expand their market
presence in China.
Expenses for advertisement and promotion can be deducted up to
30% of the turnover for the year 2008 to 2010 (compared with the
current deduction rate of 15%), and the balance can be carried
forward indefinitely. It is noted that trading companies which are
engaged in importation or distribution of drugs, cosmetic products
and beverages, are excluded from the Circular.
Further, a beverage (exclusive of alcohol) manufacturer can
either deduct the expenses for advertisement and promotion itself,
or alternatively have part or all of such expenses consolidated
into the sales expenses incurred by its franchisor.
Last but not least, considering that the annual corporate income
tax filing for the year 2008 is completed by now, we hereby kindly
remind the accountants of pharmaceutical, cosmetic and beverage
(exclusive of alcohol) manufacturers that any tax overpayment -
deduction at a rate of 15% instead of the increased cap of 30% -
can be claimed back when handling annual corporate income tax
filing for the year 2009.
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