培训课程
Income Tax on Foreign Investment Enterprises (FElT) 2
4. TAX DEDUCTIBLES
In general, costs incurred during an accounting period are tax deductible unless excluded under FElT. The following expenses cannot be treated as deducible expenses:
Capital expenditure on purchase of fixed assets.
Interest on capital is not deducible. Other interest can be deductible if the interest rate is not higher than the rate offered by the commercial banks with similar type of loan and the same loan period.
Expenses on acquisition and exploration of intangible assets such as patents, technical know-how, trademarks, copyrights, and land use rights that can be amortized over the specified period of use. If there is no specified period of use, it should be amortized over a period of not less than 10 years.
Bad debt provision is generally not allowable, but 3 % of the year-end debtor¡¯s balance for the enterprise in the credit and leasing industries is deducible after the tax bureau’s approval. An actual bad debt can be deductible after the tax bureau’s approval if the debtor is in bankruptcy or it is irrecoverable from the estate of the deceased debtor or it is over 2 years from due date and still outstanding.
The share of management fee paid to the head office can be deductible if (1) the share is reasonable overhead incurred by the head office of the enterprise, (2) there is supporting documents showing the allocation basis together with a certified public accountant report, and (3) there is approval from the local tax bureau. The share of management fee paid to related companies is non-deductible. Please note that royalty paid to the head office is non-deductible.
There is a limit for the deduction of entertainment expenses:
(a) For a service-providing company, 1% of turnover for annual turnover under RMB 5 million and 0.5% of the portion of annual turnover over RMB 5
million.
(b) For a manufacturing and trading company, 0.5 % of turnover for annual turnover under RMB 15 million and 0.3% of the portion of annual turnover
over RMB 15 million.
@A foreign invested enterprise engaged in the entertainment industry has a total income of RMB 35 million in year 1998, with RMB 220,000 of entertainment expenses for the year. When the enterprise calculates the taxable income for that year, what is the tax deduction of the entertainment expenses?
For a service-providing company, the limit for the deduction of entertainment
expenses is calculate based on the net business income, x lO%o +
(35,000,000 - 5,000,000) x S%o = RMB 200,000
if the enterprise is engaged in both service and manufacturing industry, the limit should be applied to the each activity, if each activity cannot be separated, the major business is the basis for determining the entertainment expenses limit.
Welfare and salary paid to the local staff is deducible but the overseas social insurance premium paid for the expatriates is not deducible if the amount is not included as part of the reporting remuneration to tax bureau.
Donation through the designated non-profit making organisations to the benefit of the public or directly to the non-related scientific and high educational institutions can be deductible.
For any FE with an establishment in China and the establishment receives overseas income that is related to the establishment (e.g. dividends, interest, royalty, etc.), the payment to overseas tax authorities related to the overseas income can be treated as expenses.
For any FE without an establishment in China and receives royalty income derived from sources in China, the business tax paid can be treated as expense. Therefore the withholding tax of the royalty paid by a Chinese company to an overseas company which is a tax resident of a country that has entered into the double tax avoidance treaty = 10% x net amount of royalty/(1 - business tax rate)
Expenses paid for land use right can be amortized over the beneficiary period.
If the current year’s research and development expenses incurred in PRC is 10 % more than or equal to that of last year, 150% of the current year expenses incurred can be deductible. If the additional 50% of the expenses is more than the current year’s taxable profit, the exceeding amount cannot be carried forward.
Provision for medical insurance fund, housing fund and pension fund made in accordance with the government rules can be deductible. Provision of labor education fund and work union fund made in accordance with the accounting regulation can be deductible. All other actual staff welfare expenses can be deductible, provided that the amount is no more than 14% of annual total wages and salaries.
In general, costs incurred during an accounting period are tax deductible unless excluded under FElT. The following expenses cannot be treated as deducible expenses:
Capital expenditure on purchase of fixed assets.
Interest on capital is not deducible. Other interest can be deductible if the interest rate is not higher than the rate offered by the commercial banks with similar type of loan and the same loan period.
Expenses on acquisition and exploration of intangible assets such as patents, technical know-how, trademarks, copyrights, and land use rights that can be amortized over the specified period of use. If there is no specified period of use, it should be amortized over a period of not less than 10 years.
Bad debt provision is generally not allowable, but 3 % of the year-end debtor¡¯s balance for the enterprise in the credit and leasing industries is deducible after the tax bureau’s approval. An actual bad debt can be deductible after the tax bureau’s approval if the debtor is in bankruptcy or it is irrecoverable from the estate of the deceased debtor or it is over 2 years from due date and still outstanding.
The share of management fee paid to the head office can be deductible if (1) the share is reasonable overhead incurred by the head office of the enterprise, (2) there is supporting documents showing the allocation basis together with a certified public accountant report, and (3) there is approval from the local tax bureau. The share of management fee paid to related companies is non-deductible. Please note that royalty paid to the head office is non-deductible.
There is a limit for the deduction of entertainment expenses:
(a) For a service-providing company, 1% of turnover for annual turnover under RMB 5 million and 0.5% of the portion of annual turnover over RMB 5
million.
(b) For a manufacturing and trading company, 0.5 % of turnover for annual turnover under RMB 15 million and 0.3% of the portion of annual turnover
over RMB 15 million.
@A foreign invested enterprise engaged in the entertainment industry has a total income of RMB 35 million in year 1998, with RMB 220,000 of entertainment expenses for the year. When the enterprise calculates the taxable income for that year, what is the tax deduction of the entertainment expenses?
For a service-providing company, the limit for the deduction of entertainment
expenses is calculate based on the net business income, x lO%o +
(35,000,000 - 5,000,000) x S%o = RMB 200,000
if the enterprise is engaged in both service and manufacturing industry, the limit should be applied to the each activity, if each activity cannot be separated, the major business is the basis for determining the entertainment expenses limit.
Welfare and salary paid to the local staff is deducible but the overseas social insurance premium paid for the expatriates is not deducible if the amount is not included as part of the reporting remuneration to tax bureau.
Donation through the designated non-profit making organisations to the benefit of the public or directly to the non-related scientific and high educational institutions can be deductible.
For any FE with an establishment in China and the establishment receives overseas income that is related to the establishment (e.g. dividends, interest, royalty, etc.), the payment to overseas tax authorities related to the overseas income can be treated as expenses.
For any FE without an establishment in China and receives royalty income derived from sources in China, the business tax paid can be treated as expense. Therefore the withholding tax of the royalty paid by a Chinese company to an overseas company which is a tax resident of a country that has entered into the double tax avoidance treaty = 10% x net amount of royalty/(1 - business tax rate)
Expenses paid for land use right can be amortized over the beneficiary period.
If the current year’s research and development expenses incurred in PRC is 10 % more than or equal to that of last year, 150% of the current year expenses incurred can be deductible. If the additional 50% of the expenses is more than the current year’s taxable profit, the exceeding amount cannot be carried forward.
Provision for medical insurance fund, housing fund and pension fund made in accordance with the government rules can be deductible. Provision of labor education fund and work union fund made in accordance with the accounting regulation can be deductible. All other actual staff welfare expenses can be deductible, provided that the amount is no more than 14% of annual total wages and salaries.
