Issues To Be Considered For Year End Account Closing And Annual Tax Reconciliation for 2008 By By Sabrina Zhang, National Tax Partner, Dezan Shira & Associates

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PART A: EXPENSES AND DEDUCTIONS
On January 1, 2008, China launched its revised corporate income tax (CIT) regime. The new CIT law was based on the unification of the previous Enterprise Income Tax (EIT) Law for local enterprise and the Foreign Enterprise Income Tax (FEIT) Law for foreign invested enterprises.

According to the new CIT law, both domestic and foreign invested enterprises in China now have the same tax rate of 25 percent, regardless of whether an enterprise enjoyed tax incentives or holidays before 2008 (enterprises previously enjoying tax incentives were granted grandfather rules to either gradually increase their tax rate to 25 percent over five years percent or enjoy a tax holiday over five years.)

Compared with the previous EIT and FEIT laws, the new tax law included several changes to expenses deductions. As 2008 is the first year enterprises will have to comply with the new CIT law, we take a brief look at the main expense deductions enterprises can file in at the end of the year.

Advertising expense and business promotional expenses
Qualified advertising expense and business promotion expenses are allowed to be deductible of up to 15 percent of the sales (business) income of that year unless otherwise prescribed by the in-charge finance and tax departments of the State Council. Any excess amount is allowed to be carried forward and deductible in the following year.


Sabrina Zhang is the national tax partner for Dezan Shira & Associates, and has extensive experience in the fields of corporate structuring, tax planning and accounting issues related to foreign-invested enterprises. She advises international investors in China on tax matters across the country, managing a team of over 100 accountants and auditors within the firm.

For professional advice and assistance with corporate income tax filing issues in China, please contact tax@dezshira.com or visit www.dezshira.com.

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