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A number of tax regulations in China have been updated due to
changes in government policy. To help you understand what these
updates are and how they will affect your organisation, we have
prepared a table summarising them below.
Circular Number
Issuance Date
Effective Date
Topic
What is new?
Decree of SAT [2012] No. 15
2012-4-24
2011-1-1
CIT deductions
Decree [2012] No. 15 is effective retroactively from 1 January
2011. It provides clarifications on several items deductible before
Corporate Income Tax ("CIT"): (1) Entertainment expenses
and advertisement expenses incurred during the pre-operation period
can be booked as pre-operation expenses.
Pre-operation period is the period between the date of initial
taxation registration by an enterprise to the date when the first
tax invoice (fapiao) is issued by this enterprise. The
pre-operation expenses can either be deducted in a lump sum in the
year when the enterprise issues its first tax invoice or be
amortized in 3 years.
Under the existing tax regulations, deduction of these two kinds
of expenses, i.e. entertainment expenses and advertisement
expenses, is subject to caps calculated on the basis of the annual
revenue. I.e. 60% of the entertainment expenses are deductible
capped at 0.5% of the annual revenue. Advertisement expenses are
deductible capped at 15% of the annual revenue.
Previously, it was not clear, if such kind of expenses incurred
in the pre-operation period are deductible at all since there is no
revenue during the pre-operation period. Decree [2012] No. 15 now
clarifies the deductibility.
(2) Expenses incurred in the previous years but not deducted are
deductible in the year when the expenses took place. However, such
expenses can only be carried back at the maximum 5 years.
(3) Expenses recognized by relevant accounting regulations are
deductible if the amount of such expenses does not exceed the
relevant caps and scopes stipulated by tax regulations.
Circular Caishui [2012] No. 27
2012-4-20
2011-1-1
CIT policies to further support software and integrated circuit
("CI") industries
Circular Caishui [2012] No. 27 is effective retroactively from 1
January 2011. It replaces the treatments for software and CI
industries stipulated in the Circular Caishui [2008] No.1. The new
policies are as follows:
(1) Officially recognized CI manufacturing enterprises can enjoy
a CIT holiday of 2-years CIT exemption followed by 3-years CIT
halfreduction ("2+3 CIT holiday"). For key CI
manufacturing enterprises, a "5+5 CIT holiday" and a
lower CIT rate of 15% can be also granted.
(2) Newly established CI design enterprises and officially
recognized software enterprises can also enjoy the "2+3 CIT
holiday". (3) The above mentioned CIT holiday starts from the
first profit-making year. However, first profit-making year cannot
be later than 2017; otherwise no CIT holiday will be granted.
This article was written for Law-Now, CMS Cameron
McKenna's free online information service. To register for
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Law-Now information is for general purposes and guidance
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articles are not necessarily comprehensive and do not purport to
give professional or legal advice. All Law-Now information relates
to circumstances prevailing at the date of its original publication
and may not have been updated to reflect subsequent
developments.
The original publication date for this article was
31/05/2012.
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