China Issues Updated Rules on Tax Deduction for Advertising and Promotion Expenses

The Tax Deduction for Advertising and Promotion Expenses policy in China has been extended for the years 2026–2027. The updated circular retains the existing deduction caps for key industries, including cosmetics, pharmaceuticals, and beverages. It also adheres to current rules on cost-sharing arrangements while maintaining the non-deductible status of tobacco-related expenses.

On December 22, 2025, China’s Ministry of Finance (MOF) and the State Taxation Administration (STA) released Announcement [2025] No. 16, which clarifies the pre‑tax deduction rules for advertising expenses and business promotion expenses under the corporate income tax (CIT) regime. The new circular updates existing policies and will take effect from January 1, 2026.

Overview of the key provisions.

Deduction limits for specific industries

For companies engaged in the manufacturing or sale of cosmetics, pharmaceutical manufacturing, and beverage manufacturing (excluding alcoholic beverages), advertising and business promotion expenses are deductible up to 30 percent of annual sales (or operating) revenue.

Any excess beyond the 30 percent cap may be carried forward to subsequent tax years for deduction.

Cost-sharing arrangements among related parties

Where related enterprises enter into a cost‑sharing agreement for advertising and promotion activities:

• The party that incurs the expenses may deduct the portion within its own allowed limit; or
• Allocate part or all of the expenses to the related party in accordance with the cost‑sharing agreement.

When the receiving party calculates its own cap for deductible advertising and promotion expenses, the allocated portion is excluded from the base figure used to determine its deduction limit.

This provision provides more flexibility for multinational or multi‑entity corporate groups to allocate advertising costs in a tax‑efficient manner.

No deductions allowed for tobacco companies

All advertising and business promotion expenses incurred by tobacco enterprises remain non‑deductible for CIT purposes. This absolute prohibition is unchanged and applies regardless of the amount spent.

Implementation timeline

The new rules are effective from January 1, 2026, to December 31, 2027. MOF STA Announcement [2020] No.43 will be appealed spontaneously.

What has been changed?

The short answer is no.

The new 2025 policy does not introduce any substantive changes to how advertising and business promotion expenses are calculated or deducted. Instead, it is primarily a continuation of the existing policy framework, extended for two more years (2026–2027), with the previous regulation formally repealed.

China’s pre-tax deduction cap policy for different expenses

In general, reasonable expenditure incurred in relation to income received by an enterprise can be deducted from gross income. However, the Chinese tax law sets pre-tax deduction caps for certain expenses, including those for employee welfare, labor union funds, employee education, business entertainment related to production and business operations, and advertising and publicity, as summarized in the table below.

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