China SAT to Allow Firms to Deduct Losses from Taxable Income

Beginning December 1, 2010, enterprises that have seen an increase in income may make up their losses incurred in previous years, according to a recent announcement made by China’s State Administration of Taxation.

In accordance with article 5 of the Corporate Income Tax Law, previous losses may be deducted from taxable income, reducing the tax liability of the enterprise being taxed.

The details laid out in Article 18 of the CIT law reiterate that losses may offset taxable income; however, each loss may only be deducted from taxable income of an enterprise within a five-year period.

This clarification of how losses from previous years are handled should help ease the tax burden of enterprises that have incurred losses, but have also generated profits recently.