State Administration of Taxation, Administration of Pre-tax Deduction for Losses on Bad Debts by Financial Institutions Measures

Promulgated: September 9 2002
Effective: October 1 2002
Applicability: These Measures apply to all financial institutions in the PRC except for financial asset management companies (Article 13).

Main contents: The Measures list 13 types of creditors' claims or equity interest as deductible before enterprise income tax and six types of creditors' claims or equity interest as non-deductible before enterprise income tax (Articles 2 and 3). The Measures also list the types of assets for which a financial institution is permitted to make bad debt provisions. These assets include foreign loans that the financial institution on-lends to other parties and for which it bears repayment obligations (Article 4). If verified and confirmed by the tax authority, bad debt losses shall first be offset against any bad debt provisions prior to pre-tax deduction (Article 6). Recoveries of bad debts deducted before tax shall be credited to current taxable income (Article 7). The Measures also explain how bad debt deduction and provision shall be handled in financial institution groups where such deduction and provision is made through the headquarters (Articles 8 and 11).
Related legislation: PRC Enterprise Income Tax Tentative Regulations, Dec 13 1993, CLP 1994 No.1 p9; PRC Enterprise Income Tax Tentative Regulations Implementing Rules, Feb 4 1994, CLP 1994 No.3 p8 and PRC Civil Law General Principles, Apr 12 1986