Jun. 9 – The State Administration of Taxation recently issued a notice regarding corporate income tax exemptions for enterprises investing in environmentally friendly and energy saving equipment.

Guoshuihan [2010] No. 256, issued on June 2, stipulates that since January 1, 2009, VAT general taxpayers can deduct the VAT on purchases of fixed assets from VAT on sales, if they invest in qualified environmental-friendly and energy-saving equipment. Qualified equipment is that which appears in one of the following directories:

• Directory of environmental protection equipments for corporate income tax incentives
• Directory of energy-saving and water-saving equipments for corporate income tax incentives
• Directory of safe production equipments for corporate income tax incentives

In addition to appearing in one of the directories, the qualified equipment must also have obtained VAT special invoices.

If the VAT general taxpayers deduct the VAT on purchase, the total investment capital on special equipment will no longer include the VAT on purchase; otherwise the total investment capital on special equipments will account for the total amount of tax price on the VAT special invoices. For enterprises purchasing specialized equipment using general invoices, the total investment capital on the special equipment will be the amount of the tax price on the general invoice.

For more information on VAT general taxpayer status and corporate income taxes in China, please contact Dezan Shira & Associates at tax@dezshira.com.