Multinational corporations with operations in China need to be aware about new filing rules and requirements for their corporate income tax returns for 2018.
Recently promulgated tax regulations include changes affecting corporate income tax. The following list provides an overview of certain amendments, with details provided in the next section of this report.
Changes to deductions
Changes to the income tax deductions are aimed at reducing the tax burden encountered by taxpayers, by reducing the tax depreciation period, increasing the deductible limit, removing the restrictions on specific deduction items, and permitting the excess amount to be carried forward for deduction purposes.
Increase of the unit value of fixed assets eligible for one-off deduction method
Circular Cai Shui  No. 54 provides that expenditures incurred by enterprises in purchasing equipment and instruments during the period 1 January 2018 to 31 December 2020 and having a unit value not exceeding RMB 5 million are permitted to be fully expensed (100%) in the current period for corporate income tax purposes, rather than depreciated over the assets’ useful lives.
Increase of the deduction limit for staff education expenses
Circular Cai Shui  No. 51 increases the deduction limit for staff education expenses from 2.5% to 8% of the annual total payroll amount. The amount of staff education expenses not exceeding the deduction limit is deductible for corporate income tax purposes. The amount of staff education expense exceeding the deduction limit can be carried forward and claimed as deduction in future tax years, without limitation.
Relief from restriction on applying super-deduction on commissioned R&D expenses for R&D activities conducted by overseas entities
Circular Cai Shui  No. 64 provides relief from the restriction on the application of super-deduction on commissioned R&D expenses for R&D activities conducted by overseas entities—from being fully (100%) disallowed to an amount that is lower of two thresholds:
Increase the super-deduction ratio for R&D expenses to 75%
Circular Cai Shui  No. 99 provides that from 1 January 2018 to 31 December 2020, the additional deduction on qualified R&D expenses for corporate income tax purposes is increased from 50% to 75% for R&D expenses that are actually incurred by an enterprise in R&D activities when such activities have not yet resulted in intangible assets and not accrued in the current year’s profit and loss statement. Also, 175% of the amortization of intangible assets formed through the R&D activities is allowed to be claimed as deduction for corporate income tax purposes.
Carryforward of public welfare donations exceeding the deduction limit
Circular Cai Shui  No. 15 allows the amount of public welfare donations exceeding 12% of an enterprise's annual total profit to be carried forward to the subsequent three tax years for corporate income tax purposes.
Supporting documentation for deductions
The State Administration of Taxation (SAT) issued Announcement  No. 28 to clarify the requirements for documentation in support of claims for deductions of costs and expenses for corporate income tax purposes, including:
Simplified procedures for record filing for tax incentives and asset losses
Effective 2018, taxpayers are only required to complete record filing on self-assessment basis instead of obtaining pre-approval from competent tax authorities for the following:
Extended carry-forward period for losses of HNTEs and high-tech SMEs
Circular Cai Shui  No. 76 further extends the carry-forward period of losses from five years to 10 years for HNTEs and high-tech SMEs as of 1 January 2018 for losses incurred within five years before obtaining the relevant qualification.
For more information, contact a tax professional with KPMG’s China Tax Center in the United States:
David Ling | +1 609 874 4381 | firstname.lastname@example.org
Shirley Shen| +1 408 367 6088 | email@example.com
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