The administration of enterprise income tax (“EIT”) preferential policies of Chinse resident companies has gradually shifted from a system combining approval and filing procedures to a system based mainly on filing procedures, including preliminary and post-filing obligations.

Following this trend of reducing policies subject to approval, the State Administration of Taxation (“SAT”) released Announcement [2015] No. 58 in April 2015 to cancel several approval procedures.

To avoid misinterpretation, which may result in companies not accessing the EIT preferential policies despite being entitled to them, and ensure uniform application by the local tax authorities, the SAT has now issued Announcement [2015] No. 76 with several administrative measures providing more details and guidance.

The highlights of the administrative measures:

  1. All EIT preferential policies under the EIT Law or implemented by the authorities within EIT Law authorization, up to 55, are covered by the administrative measures and compiled into a catalog. Tax authorities can only review formalities of the filing procedure and may not, under any circumstances, subject the effective application of the preferential policies to approval.
  2. Companies must self-assess whether they qualify for the EIT preferential policies and, if they meet all the conditions, complete filing procedures accordingly before EIT annual filing. If the specific preferential policy involves a recurring tax reduction or exemption, filing is only required in the year the companies start to benefit from it, unless the companies’ conditions and requirements change.
  3. Small and low profit enterprises, accelerated depreciation or amortization on fixed assets or software, and one-time deduction for fixed assets policies are filed directly through the EIT annual return. All other policies require submitting a separate standard filing form, and some require further documents and evidence as listed in the catalog.

Companies must keep available all relevant documents for 10 years from the date they started benefiting from EIT preferential policies or, in case of discrepancy between tax and accounting treatment, 10 years from the end of the preferential policy.

  1. Filing obligations for companies with operational branches:
    1. Branches in other provinces enjoying specific preferential policies listed in the administrative measures must complete local filing procedures with the tax authorities in charge, while headquarters must complete the filing procedures on a consolidated basis with any other preferential policies. Headquarters must summarize local branch filings through a standard form to be submitted with their EIT annual return.
    2. Branches in the same province will follow filing procedures determined by the provincial tax authorities.
  2. Companies enjoying EIT preferential policies without having completed the filing procedures should amend their filing status when they become aware of their noncompliance, and will be required to do so by the tax authorities. However, failing to follow filing procedures does not disqualify the companies from enjoying the preferential policies. 

Filing procedures do not imply that the tax authorities will relax their supervision on EIT preferential policies. On the contrary, the tax authorities are called to implement monitoring and risk management procedures and increase the frequency of regular reviews and audits. If a company does not qualify for a preferential policy, the tax authorities are entitled to claim underpaid taxes together with late payment surcharges and, in case of tax evasion, impose the corresponding penalties.

Date of issue: November 12, 2015. Effective date: January 1, 2015 (retroactive effects)