Measures for the Administration of Pre tax Deduction of Enterprise Income Tax

Please refer to Announcement No. 28 of 2018 of the State Administration of Taxation.

There are twenty of them, so you can take a look at them for yourself. Article 2 The pre-tax deduction voucher mentioned in these measures refers to all kinds of vouchers used by enterprises to prove that reasonable expenses related to the income are actually incurred and are used for pre-tax deduction when calculating the taxable income of enterprise income tax.

Article 3 The enterprises mentioned in these measures refer to the resident enterprises and non-resident enterprises stipulated in the Enterprise Income Tax Law and its implementing regulations.

Article 4 The pre-tax deduction voucher shall follow the principles of authenticity, legitimacy and relevance in the management. Authenticity means that the economic business reflected in the pre-tax deduction voucher is genuine, and the expenditure has actually been incurred; Legitimacy refers to the form of the pre-tax deduction voucher, which conforms to national laws, regulations and other relevant provisions; Relevance means that the pre-tax deduction voucher is associated with the expenses it reflects and has probative force.

Article 5 When an enterprise incurs expenditures, it shall obtain a pre-tax deduction voucher as the basis for deducting relevant expenses when calculating the taxable income of enterprise income tax.

Article 6 An enterprise shall obtain a pre-tax deduction voucher before the end of the final settlement period stipulated in the Enterprise Income Tax Law of the current year.

Article 7 Enterprises shall keep the materials related to the pre-tax deduction vouchers, including the contract agreement, the basis of expenditure, the payment vouchers, etc., for future reference, so as to confirm the authenticity of the pre-tax deduction vouchers.

Article 8 Pre-tax deduction vouchers are divided into internal vouchers and external vouchers according to **.

Internal vouchers refer to the original accounting vouchers made by enterprises for the accounting of costs, expenses, losses and other expenses. The filling and use of internal vouchers shall comply with the relevant provisions of national accounting laws and regulations.

External vouchers refer to the vouchers obtained from other units and individuals to prove the occurrence of expenditures when an enterprise has business activities and other events, including but not limited to invoices (including paper invoices and electronic invoices), financial bills, tax payment vouchers, collection vouchers, division orders, etc.

Article 9 Where the expenditure items incurred by an enterprise within the territory of China are VAT taxable items (hereinafter referred to as "taxable items"), the other party shall be a VAT taxpayer who has gone through tax registration, and the invoices (including invoices issued by the tax authorities on behalf of the tax authorities in accordance with the regulations) shall be used as the pre-tax deduction vouchers; If the other party is a unit that does not need to go through tax registration in accordance with the law or an individual engaged in small and sporadic business, its expenditure shall be based on the invoice or receipt voucher and internal voucher issued by the tax authority as the pre-tax deduction voucher, and the receipt voucher shall contain the name of the receiving entity, the name and ID number of the individual, the expenditure item, the amount of collection and other relevant information.

The criterion for judging small and sporadic business is that the sales amount of an individual engaged in the business of taxable items does not exceed the threshold stipulated in the relevant VAT policies.

If the State Administration of Taxation has other provisions on the issuance of invoices for taxable items, the prescribed invoices or bills shall be used as pre-tax deduction vouchers.

Article 10 If the expenditure items incurred by an enterprise within the territory of China do not belong to taxable items, and the other party is a unit, other external vouchers other than the invoices issued by the other party shall be used as the pre-tax deduction vouchers; If the other party is an individual, the internal voucher shall be used as the pre-tax deduction voucher.

Although the expenditure items incurred by the enterprise in China are not taxable items, but invoices can be issued according to the provisions of the State Administration of Taxation, the invoices can be used as pre-tax deduction vouchers.

Legal Analysis: Unless otherwise provided by tax regulations, the recognition of pre-tax deductions should generally follow the following principles:

1) The principle of accrual accounting. That is, the taxpayer should recognize the deduction when the expense is incurred and not when it is actually paid.

2) The principle of proportionality. That is, the expenses incurred by the taxpayer should be declared and deducted in the current period when the expenses should be proportioned or distributed. The deductible expenses that should be declared by taxpayers in a certain tax year shall not be declared in advance or late.

3) The principle of relevance and trustworthiness. That is, the deductible expenses of the taxpayer must be related to the acquisition of taxable income in nature and at the root.

4) The principle of certainty. That is, the amount of deductible expenses of the taxpayer must be determined whenever they are paid.

5) The principle of reasonableness. That is, the calculation and allocation method of taxpayers' deductible expenses should be in accordance with general business practices and accounting practices.

Legal basis: Article 9 of the Measures for Pre-tax Deduction of Enterprise Income Tax Taxpayers must reasonably divide the costs incurred in business activities into direct costs and indirect costs. Direct costs are direct materials, direct labor, etc., that can be directly included in the operating costs of the relevant cost calculation objects or services.

Indirect costs refer to the common costs of multiple departments providing services to the same cost object, or the joint costs of manufacturing or providing two or more products or services with the same input.

Direct costs can be directly included in the operating costs of the relevant cost calculation objects or services according to the relevant accounting documents and records. Indirect costs must be allocated to the relevant cost deficiency calculation objects in a reasonable way according to the causal relationship between them and the cost calculation object, the output of the cost calculation object, etc.

The Administrative Measures for Pre-tax Deduction of Enterprise Income Tax refer to the relevant laws and regulations applicable to enterprises when making pre-tax deductions for enterprise income tax, including the Regulations on the Implementation of the Enterprise Income Tax Law of the People's Republic of China and the Announcement of the State Administration of Taxation on Issuing the Administrative Measures for Pre-tax Deduction Vouchers for Enterprise Income Tax.

Article 2 of the Administrative Measures for the Pre-tax Deduction of Income Tax on Enterprise Asset Losses refers to the assets owned or controlled by enterprises and used for business and management activities, including cash, bank deposits, receivables and prepayments (including notes receivable, various advances, and transactions between enterprises) and other monetary assets, inventory, fixed assets, intangible assets, projects in progress, productive biological assets and other non-monetary assets, as well as debt investment and equity (pure leather equity) investment.

The Administrative Measures for the Pre-tax Deduction of Income Tax on Enterprise Asset Losses was promulgated by the State Administration of Taxation Announcement No. 25 on March 31, 2011. The Measures are divided into General Provisions, Declaration Management, Evidence of Recognition of Asset Losses, Recognition of Monetary Asset Losses, Recognition of Non-monetary Asset Losses, Recognition of Investment Losses, Recognition of Other Asset Losses, and Article 52 of Chapter 8 of the Supplementary Provisions, which came into force on January 1, 2011.

Article 2 of the Administrative Measures for the Pre-tax Deduction of Income Tax on Enterprise Asset Losses refers to the assets owned or controlled by the enterprise and used for business and management activities, including cash, bank deposits, receivables and prepayments (including notes receivable, various advances, and transactions between enterprises) and other monetary assets, inventory, fixed assets, intangible assets, projects under construction, productive biological assets and other non-monetary assets, as well as pure investment in debt and equity investment.