China’s SAT Issues FAQs Relating to Tax Payments: Part II

Oct. 10 – China’s State Administration of Taxation (SAT) issued another set of frequently asked questions relating to tax payments on October 8. The answers provided are based on existing regulations. Detailed information can be found below. 

Q: Should house exchanges be subject to deed tax?

A: According to relevant regulations, where land use rights or houses are exchanged at different prices, the party that pays more in the form of money, physical items, intangible assets or other economic benefits shall be liable for tax payment, and deed tax shall be exempted if the exchange prices are the same.

Q: Where an enterprise discovers that there is an expense incurred in the previous years that has not been deducted prior to the calculation of enterprise income tax during its self-audit, can such an expense still be deducted as a pre-tax expenditure?

A: According to relevant provisions, where an enterprise discovers any expenses incurred in previous years that should have been deducted before the calculation of enterprise income tax but failed to be deducted or failed to be fully deducted, the enterprise may, after making special declarations and explanations, retrospectively deduct such expenses for the year in which such expenses incurred, but the period for such retroactive confirmation shall not exceed five years.

The over-paid amount of enterprises income tax by an enterprise due to the aforesaid reasons can be deducted from its amount of enterprise income tax payable for the year when such expenses were retrospectively recognized. If the over-paid amount of enterprise income tax exceeds its amount payable of enterprise income tax for the year, the balance thereof may be carried forward to the subsequent years for deduction or tax rebate application.

Q: Can qualified SME credit guarantee institutions enjoy the policy on pre-tax deduction of enterprise income tax?

A: From January 1, 2011, to December 31, 2015, the guarantee compensation reserve provided by qualified SME credit guarantee institutions at a proportion of not more than 1 percent of the guarantee liability balance at the end of the current year is allowed to be deducted before business income tax, and the guarantee compensation reserve balance provided in the previous year shall be simultaneously converted into income of the current period.

The undue liability reserve provided by qualified SME credit guarantee institutions at a proportion of not more than 50 percent of the premiums of the current year is allowed to be deducted before business income tax, and the balance of undue liability reserve provided in previous years shall be simultaneously converted into income of the current period.

---