On November 22, 2016, the Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") jointly issued the Circular on Implementing Tax Supporting Policies for Reducing the Leverage Ratio of Enterprises (the "Circular").
The Circular expressly states that for any equity (assets) acquisition, merger, debt restructuring and other reorganization behaviours that satisfy conditions stipulated by tax laws, enterprises may be entitled to the provisions of the tax laws. Enterprises that make investment with non-monetary assets may be entitled to the policy of paying enterprise income tax by instalments within five years according to provisions. Where an enterprise goes bankrupt or is deregistered and thus shall settle the enterprise income tax, it may deduct the liquidation expenses, salaries for employees, social insurance contributions, statutory compensations etc. before the enterprise income tax according to provisions. According to the Circular, for losses from creditor's rights that meet certain conditions provided in tax laws, such losses are deductible according to provisions when the enterprise calculates the taxable income for the enterprise income tax purpose. The loan-loss reserves withheld by a financial enterprise according to provisions may also be deductible before the enterprise income tax. Moreover, the Circular sets out those relevant preferential policies that shall apply to the land appreciation tax, deed tax and stamp tax involved in the restructuring and reform of an enterprise.