It is the time for doing the annual tax clearance. Shanghai Dongjin finds the new policies as below you must know before doing it.
- Tax Preferential Policies with Wider Coverage for Small Low-profit Enterprises
From January 1, 2017 to December 31, 2019, the upper limit of annual taxable incomes of small low-profit enterprises will be lifted from CNY300,000 to CNY500,000. For a small low-profit enterprise of which the annual taxable income is less than CNY500,000 (inclusive), its income is included in the taxable income at the reduced ratio of 50%, and the enterprise income tax is paid at the tax rate of 20%.
The small low-profit enterprises mentioned in the preceding clause refer to enterprises engaged in industries not restricted and prohibited by the State and meet the following conditions:
- industrial enterprises: the annual taxable income is not more than CNY500,000; the number of employees is not more than 100, and the total amount of assets is not more than CNY30 million.
- other enterprises: the annual taxable income is not more than CNY500,000; the number of employees is not more than 80, and the total amount of assets is not more than CNY10 million.
- The Completion of the Scope of Research and Development Expenses for the Purpose of Super Pre-tax Deduction
It could be referred in Announcement of the State Administration of Taxation  No.40, covering the following points.
- The expenditure of equity incentives for researchers and developers, which may be deducted before tax according to the provisions.
- Clarify the method for calculating the product sales and the incurrence of corresponding material costs in different tax years.
- The instruments and equipment, which are used for research and development activities, shall comply with the provisions of tax laws and be subject to the preferential policies on accelerated depreciation, shall be subject to the pre-tax weighted deduction of costs of research and development and the pre-tax deduction of their depreciation.
- The intangible assets resulting from the costs of research and development incurred in the research and development activities shall be capitalized at a time point of the accounting treatment.
- The costs of research and development incurred in unsuccessful research and development activities may be subject to the policies on weighted deduction.
- The Increase of the deduction before tax for a medium- or small-sized tech firm from its R&D activities
- Regarding the actual R&D costs incurred by a medium- or small-sized tech firm from its R&D activities, an additional 75% of the actually incurred costs may be deducted before tax from January 1, 2017 to December 31, 2019, on the basis of actual deductions as required, provided that no intangible asset has been formed and then balanced into its current gains and losses; where any intangible asset has been formed, such costs may be amortized at the rate of 175% of the intangible asset's costs before tax during the above-said period.
- Where an enterprises is assigned a Hi-tech SME registration number under Articles 10 to 12 of the Evaluation Measures within the enterprise income tax ("EIT") settlement period, it shall be entitled to the preferential policies provided for in the Circular in the corresponding EIT settlement year; where an enterprise fails to meet prescribed requirements upon updating its information in compliance with Article 12 of the Evaluation Measures, it shall no longer be entitled to the preferential policies provided for in the Circular in the EIT settlement year.
- Public Welfare Donations Can Deducted Before the Enterprise Income Tax
- For the donations, made by an enterprise through non-profit social groups or the people's governments at or above the county level as well as departments and directly affiliated authorities thereof for the purpose of charitable activities and public welfare undertakings, they may be deducted in full from the taxable income, if not higher than 12 percent of its annual total profits; however, if higher than 12 percent, the part in excess of 12 percent of its annual profits may be carried forward to the next three years for deduction when the taxable income is calculated.
- The deductible part of public welfare donations made by an enterprise in the current year and the remaining portion carried forward from the previous years, before the enterprise income tax, shall represent up to 12 percent of its total profits earned in the current year.
- If a portion of public welfare donations made by an enterprise has not been deducted before the enterprise income tax, the enterprise is allowed to carry forward such portion to the next three years at most beginning from the year after the year in which donations are made.
- In deducting the expenditures of public welfare donations, the enterprise shall deduct first the donations carried forward from the previous years and then those made in the current year.
- Advertising Expenses and Business Promotion Expenses is Permitted to be Carried Forward to the Subsequent Tax Years for Deduction
For advertising expenses and business promotion expenses incurred by an enterprise manufacturing or selling cosmetics, manufacturing medicine or producing beverage (excluding liquor), the part less than 30% of the sales (business) revenue in the current year is permitted to be deducted; and the part in excess of the aforesaid quota is permitted to be carried forward to the subsequent tax years for deduction.
- Promote the Development of the Venture Capital
- Where a venture capital firm of corporate nature has made direct equity investment in a tech firm in the seed stage or early stage (the "tech startup") for two or more years, it may deduct 70% of the investment amount from its taxable income in the current year when it has held such equity shares for two years (24 months, hereinafter the same), and if its taxable income for the current year is less than 70% of the investment amount, the deduction may be carried forward to the following tax year(s).
- Where a limited partnership venture capital investment enterprise (the "partnership venture capital investment enterprise") has made direct equity investment in a tech startup for two or more years, its partners may follow these measures below respectively:
(1) The corporate partner may deduct 70% of the amount invested in the tech startup from its income distributed from the partnership venture capital investment enterprise for the current year; if his or her income for the current year is less than 70% of the investment amount, the deduction may be carried forward to the following tax year(s).
(2) The individual partner may deduct 70% of the amount invested in the tech startup from its business income distributed from the partnership venture capital investment enterprise for the current year; if his or her business income for the current year is less than 70% of the investment amount, the deduction may be carried forward to the following tax year(s).
- Increase the Method and Level for the Deduction and Exemption of the Taxable Income Amount from Abroad
- An enterprise may calculate its taxable income amount from abroad by countries (regions) (i.e. "by country (region) and not by item") or calculate aggregately its taxable income from abroad (i.e. "not by country (region) and not by item"), and calculate its overseas income tax amount which is subject to tax credit and the tax credit limit respectively in accordance with the tax rate stipulated in Article 8 of Cai Shui  No. 125. The enterprise may not change the method within five years once adopting the method above.
- For dividends obtained overseas by an enterprise, when calculating the enterprise's overseas income tax amount subject to tax credit and the tax credit limit according to the provisions, the foreign enterprise with 20% or more of its shares being held directly or indirectly by the enterprise shall be limited to five tiers of foreign enterprises as determined in accordance with the shareholding method stipulated in Article 6 of Cai Shui  No. 125
- Enterprise Income Tax as 15% for the High-Tech Enterprise
- An enterprise, after obtains the qualification as a high-tech enterprise, will enjoy the tax preferences from the year in which the date of issuance indicated on the certificate of high-tech enterprises falls and shall complete the record-filing formalities with the competent tax authority in accordance with the provisions.
- In the year when the enterprise's qualification as a high-tech enterprise expires, before passing the re-accreditation, its enterprise income tax shall be temporarily prepaid at the rate of 15%. If the enterprise still fails to obtain the qualification as a high-tech enterprise before the end of the year, it shall pay back taxes for the corresponding tax period in accordance with the provisions.
If you have any question, please contact me.
Mr. Mike Chang
TEL: 0086-21-68868321 / FAX: 0086-21-68868021