Sept. 27 – China’s State Administration of Taxation (SAT) issued frequently asked questions relating to tax payments on September 24. The answers provided are based on existing regulations. Detailed information can be found below.
Q: Can the traveling expenses paid by an enterprise for their employees be included under the scope of employee welfare and listed as pre-tax expenditure?
A: According to the Implementing Rules of Enterprise Income Tax, “Employee welfare” includes:
- Expenses for equipment, facilities and employees of the internal welfare departments established within an enterprise that has been relieved from performing social functions, including expenses for equipment, facilities and maintenance thereof for the collective welfare departments, such as staff canteens, staff bathrooms, hairdressing saloons, infirmaries, nurseries, and sanatoriums, as well as wages and salaries, social insurance premiums, housing fund, and labor service fees for staff of social welfare departments.
- All allowances and non-monetary welfare granted to employees for their health care, daily living, housing, and traffic including the expenses and allowances granted by an enterprise to its employees, such as medical expenses for medical care incurred during business trips, expenses for medical care of employees of an enterprise that is not under the cooperative medical-care system, allowance for lineal relatives supported by the employees, heating allowance, heatstroke prevention expenses, allowance for the employees with livelihood difficulties, relief fund, canteen allowance, and traffic allowance for the employees.
- Other employee welfare expenses incurred in accordance with other provisions, including subsidies for funeral expenses, pension for the family of the deceased, settlement allowance, and home leave traveling expenses.
Therefore, the traveling expenses paid by an enterprise for their employees cannot be included under the employee welfare expenses and listed as a pre-tax expenditure.
The SAT further provided that, for enterprises headquartered outside the preferential tax areas for western development, the 15 percent preferential tax rate shall be applied only to the revenues of their branches established within the preferential tax areas (excluding branches below the third level established in the preferential tax areas).
Q: Can the rental expenses paid by an enterprise for renting large-size equipment be deducted on a lump-sum basis before tax payment?
A: According to the relevant regulations, rental expenses paid by an enterprise for renting fixed assets based on the need of its production and business operations shall be deducted as follows:
- Expenses incurred for renting fixed assets in the form of an operating lease shall be deducted evenly over the lease term; and
- Expenses incurred for renting fixed assets in the form of a financing lease shall be deducted in installments to the extent of the portion thereof that forms a part of fixed assets value for which depreciation expenses shall be drawn.
Therefore, the rental expenses paid by an enterprise for renting large-size equipment cannot be deducted on a lump-sum basis before tax payment.
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