State Administration of Taxation, Income Tax Issues that Need to be Clarified in Relation to the Implementation of the «Enterprise Accounting System» Circular

Issued: April 24 2003
Effective: January 1 2003

Main contents: An enterprise's expenses on loans for external investment that are in compliance with relevant provisions may be directly deducted and need not be capitalized and counted as investment cost (Item One). The Circular provides the accounting treatment for an enterprise's donation in the form of raw materials, fixed assets, intangible assets or negotiable securities (Item Two). For reserve funds, unless otherwise provided by State tax provisions, no reserve funds may be deducted before enterprise income tax (Item Three). For the permanent or actual damage, the Circular sets out how such damage may be deemed to be property loss and how deduction should be dealt with (Item Four). Item Five specifies how certain pension, medical and unemployment insurance may be deducted before tax. Item Six deals with the accounting treatment for changes in asset or equity value from enterprise reorganization. Lease financing and operating lease are treated differently for tax purposes (Item Seven). The extent of withdrawal of the provision for bad debts is specified in Item Eight. Sales income may be offset by sales refunds if the buyer provides proper proof (Item Nine).