SAT Clarifies Specific CIT Declaration Issues

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May 11 – Following the issuance of “Corporate Income Tax (CIT) Law” in 2008, China’s State Administration of Taxation (SAT) has also released a number of regulations specifying distinct tax treatment to enterprises under specific conditions. Based on these documents, the SAT has recently made an announcement (SAT Announcement [2011] No. 29) that tells eligible enterprises what to note during their annual CIT declaration, in order to make sure each particular tax treatment can be well received.

Declaration of tax deduction/exemption by small-sized enterprises with low profit
According to the “Circular on CIT Treatment to Small-sized Enterprises with Low Profit” (caishui [2009] No.133), small-sized enterprises with an annual taxable income of no more than RMB30,000 shall reduce their taxable income base by half and pay an annual CIT at the rate of 20 percent. When declaring their tax deduction or exemption, those enterprises shall fill the figure – 15 percent of their annual taxable income – into Row 34 (I Eligible small-sized enterprise with low profit) of Form Five (Tax Incentives List), in Appendix I of the “Circular to Release CIT Annual Declaration Form” (guoshuifa [2008] No.101).

Declaration of increased taxable income after audit
The “Announcement on How Increased Taxable Income after Audit Offsets Losses in Previous Years” (SAT Announcement [2010] No.20) stipulates that if an enterprise’s annual taxable income increases after audit, the increased part can be used to offset losses in previous years under the legal regime of the CIT Law. Enterprises that want to declare their previous losses for the aforementioned purpose shall fill out Column Two (Amount of Profit or Loss) – on the row of the year when the taxable income increase happened – of Form Four (Loss Offsetting List), in Appendix I of the Circular No.101.

Declaration of taxable interest and insurance service income deduction
According to the “Circular on Related Taxation Policies on Rural Finance” (Caishui [2010] No.4), during the period between January 1, 2009 and December 31, 2013, financial institutions that provide micro loans to farmers can reduce their taxable interest income base by 10 percent, and insurance companies that offer services to planting or aquaculture industries can do the same to their taxable insurance fee income. In order to declare the taxable income deduction, financial institutions and insurance companies shall fill the figure – 10 percent of their taxable interest or insurance fee income – into Row Eight (2. Others) of Form Five (Tax Incentives List) in Appendix I of the Guoshuifa Circular [2008] No.101.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. The firm specializes in assisting foreign enterprises with their tax obligations. For advice, please email tax@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

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