Beijing Municipality, Pre-tax Deductions from Local Enterprise Income Tax Procedures

Issued: 31 October 2000
Effective: 1 January 2000

Main contents: Part Two deals with the handling of operating costs. An enterprise should notify the tax authority of a change in the cost calculation method before the start of the subsequent tax year (Article 12). Part Three deals with deductions for taxes and duties paid. Excise tax, business tax, land value-added tax, and education tax are some of the taxes that are claimable as deductions (Article 17). Part Four deals with deductions for corporate losses. Part Five concerns deductions for capital depreciation and amortization. Immovable fixed assets are valued according to the itemized list prepared by the company responsible for the construction of the fixed assets; purchased fixed assets are valued according to purchase price plus transportation, installation, import taxes, and other costs (Article 20). Depreciation of fixed assets is based on residual value (Article 22). Unless otherwise stipulated by legislation, the shortest depreciation period is 20 years for buildings; 10 years for trains, machines and production equipment; and five years for electronic equipment and vehicles other than trains and boats. Depreciation of intangible assets is based on original cost (Article 23). The original cost of a purchased intangible asset includes purchase price and related costs, while the original cost of an intangible asset produced by the taxpayer is based on the cost of research and development. A land transfer payment to the government or other person is handled as an intangible asset, and is amortized over a period not shorter than the land usage period as stipulated in the land transfer contract (Article 25). Business establishment costs are amortized over a period of at least five years (Article 27). Part Six concerns various guidelines for pre-tax deductions of items such as wages, union costs, pension costs, interest and entertainment. Deductions for union costs, employee benefits, and education are calculated respectively at 2%, 14% and 1.5% of the actual cost (Article 31). Business entertainment deductions should not exceed 0.5% of the net operating income when an enterprise's net operating income is less than 15 million yuan; when net operating income exceeds 15 million, the limit is 0.3% (Article 33). Advertising cost totalling 2% or less of the operating income can be deducted, while any amount in excess of 2% can be rolled over into future tax periods (Article 35).

Related legislation: Beijing Municipality, Issue of the Administration of the Examination of Pre-tax Compensation from Enterprise Income Tax for Losses Procedures Circular, 2000