A new update on the Chinese business Enterprise Income Tax (EIT) system has been published in April 2012 in the State Administration of Taxation bulletin. It covers several issues relating to Chinese tax deductions and compliance, including salaries on contract employees and prior year tax adjustments.
Contract workers’ employee costs
Payroll costs, salaries and social security contributions are now fully deductible against EIT for part-time, seasonal and contract workers. However, other employer levies, such as the Educational Fund payment, are only partially deductible – further guidance to be provided.
Adjustments to prior year Chinese tax returns
Companies may now resubmit adjusting EIT returns to deduct costs not previously charged. This process is allowed for only the previous five years. The overpaid EIT may then be offset against the current liability, or carry forward for a further five years – previously three years. In certain circumstances, an application for the repayment of a tax credit may be made.
Clarification of other deductions against Chinese EIT
The following additional corporate costs are now also deductible:
• Expenses incurred in the start up of the business may be offset against future incomes in certain circumstances
• Debt-related financing costs, including bonds, without any equity element
• Commissions paid to agents for business services such as insurance and office rentals
If you would like to learn more about how Chinese EIT works, then please contact one of our offices in China. TMF Group helps companies crossing borders with a range of accounting, corporate secretarial and HR & payroll compliance services, and we would be delighted to provide you with free guidance.