The Ministry of Finance and the State Taxation Administration released on March 4, 2022 the Announcement of the Policy on Pre-tax Deduction of Taxable Corporate Income on Micro, Small and Medium-sized Enterprises for Purchase of Equipment, which clarified the specific deduction rules.
I. Micro, small and medium-sized enterprises may voluntarily opt for pre-tax deduction at a certain percentage of the unit value of equipment and appliances that are newly purchased during the period from 1 January 2022 to 31 December 2022 with a unit value of CNY5 million or above for corporate income tax purpose. Specifically, for equipment and appliances with a minimum depreciation period of three years as stipulated in the Implementation Regulations for the Corporate Income Tax Law, 100% of the unit value of such equipment and appliances may be deducted pre-tax on a one-off basis for the current year; and for equipment and appliances with a minimum depreciation period of four, five or ten years, 50% of the unit value of such equipment and appliances may be deducted pre-tax on a one-off basis for the current year, and the remaining 50% may be depreciated in the remaining years pursuant to the provisions for pre-tax deduction.
Losses incurred by an enterprise due to shortfall for deduction in the current year where the aforesaid policy applies may be carried forward to the next five tax years; enterprises which enjoy other policies to extend the carry-forward period for losses may do so pursuant to the prevailing provisions.
II. Micro, small and medium-sized enterprises referred to herein shall mean enterprises engaging in industries not restricted or prohibited by the State and satisfying the following criteria:
(I) the number of employees shall be not more than 2,000, or the business revenue shall be not more than CNY1 billion or the amount of total assets shall be not more than CNY1.2 billion for enterprises in the information transmission industry, construction industry, leasing and commercial service industry;
(II): the business revenue shall be not more than CNY2 billion or the amount of total assets shall be not more than CNY100 million for enterprises in real estate development; and
(III) the number of employees shall be not more 1,000 or business revenue shall be not more than CNY400 million for enterprises in other industries.
III. For the purpose of this Announcement, the term "equipment and appliances" shall mean fixed assets other than houses and buildings; the term "number of employees of an enterprise" shall include the number of employees who have established employment relationship with the enterprise and the number of secondment workers accepted by the enterprise.
The indicators for the number of employees and total assets shall be determined based on the enterprise's quarterly average value for the year. The computation formula is as follows:
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- Quarterly average value = (value at beginning of a quarter + value at end of a quarter) ÷ 2
- Quarterly average value for the year = sum of each quarterly average value for the year ÷ 4
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Where an enterprise commences or terminates business operation in the middle of a year, the actual business period shall be deemed as a tax year for determination of the aforesaid indicators.
IV. Micro, small and medium-sized enterprises may enjoy the aforesaid policies at the time of declaration for prepayment on a quarterly (monthly) basis. For equipment and appliances purchased by enterprises in 2022 prior to the promulgation of this Announcement, the said enterprises may be entitled to such policies at the time of prepayment declaration and annual final settlement after the promulgation of this Announcement.
V. Micro, small and medium-sized enterprises may opt to enjoy the aforesaid policies in light of their production and business accounting needs. In the case of not opting to enjoy the policies in the current year, they shall not change to enjoy the policies in the subsequent years.