China Tax Deductions
All forms of relief relate to the income of an individual who is a Chinese resident.
The following amounts are subject to the definition and ceilings specified in China law:
Personal Relief
- A credit for donations given by an individual up to 30% of the income.
- Income from royalties, a deduction of up to 20%.
- Current expenses for income from rental, up to CNY 1,500, or up to 20%, for each single expense.
- Relief for an individual who has suffered from a natural disaster.
- Relief for the disabled, widows/widowers and orphans up to CNY 1,000-2,000 per month.
- Medical Expenses –up to CNY 80,000 per year subject to terms.
- Mortgage Interest-CNY 1,000 per month.
Business Deductions
The following expenses are partially allowable for tax purposes in China, subject to certain conditions:- Offset of losses - a loss may be offset in China over 5 years. There is no retrospective offset of losses.
- Consolidated financial statements - there are no consolidated financial statements in China for tax purposes.
- Bad debts - in China foreign companies in the financial sector may make provisions for bad debts up to a limit of 3% of the loans granted.
- Financing expenses -financing expenses that are for the generation of income are generally allowable as an expense China. Nevertheless, expenses for shareholders loans are not allowable when the debt to equity ratio exceeds 2:1 ratio.
- For financial companies the ratio is 5:1.
- Transactions between associated parties - the Chinese income tax authorities investigate transactions between associated parties that are not conducted according to the market conditions that are customary for transactions with companies that are not associated companies.
- Entertainment expenses - 60% of the expense is deductible, not exceeding 0.5% of the income.
- Donations - for companies, up to 12% of the income is deductible.
- Advertising- up to 15% of the income is deductible.
- Start -up expenses for the first year of operation are fully deductible.
- Depreciation - The accepted method of depreciation in China is the straight line method:
- A foreign investment company may apply to the Chinese tax authorities and record depreciation at an accelerated rate.
- There is an accelerated rate of depreciation for foreign companies in China that are engaged in prospecting for oil.
The rates of depreciation in China are as follows:
| Class of Asset | Years of Depreciation |
|---|---|
| Buildings | 20 |
| Intangible assets | 10 |
| Electronic equipment | 3 |
| Machinery | 10 |
For R&D expenses in new technologies extra 50% of the expense is deductible too.