How are asset losses defined in China for annual compliance purposes and how should they be declared?

Asset losses include the following items:

• Monetary assets loss – i.e.: losses of cash, bank, account receivables, prepayments;
• Non-monetary assets loss – i.e.: losses of inventory, fixed assets intangible assets construction in process, biological assets;
• Investment loss: losses of debt investment, equity investment; and
• Other losses stipulated.

The two methods of declaring asset losses:

a) Listing method – the foreign-invested enterprise can classify and consolidate the losses according to the account titles, and submit such consolidated list to the tax authority. Only the following asset loss items are allowed to use listing method:

• Loss on the sale, transfer or disposal of non-monetary assets based on fair price in the course of normal operation and management activities of the enterprise;
• Ordinary wear and tear in all types of inventories of the enterprise;
• Disposal of fixed assets after its usage period;
• Disposal of biological assets after its usage period;
• Transaction losses in buying and selling securities, such as bonds, stocks, funds and other derivative financial products through a stock exchange or market.

b) Specific declaration method – an application report for each item or transaction should be submitted to the tax authority, supplemented by the accounting information as well as other tax information thereof. Specific declaration method is applicable to any deduction other than those specified for listing method.