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Revised Law Clarifies Charity-related Tax Reliefs

Minister of Finance Xiao Jie recently briefed the Standing Committee of the National People’s Congress (NPC) on the changes contained in the Amendment to the Enterprise Income Tax Law of the People’s Republic of China (Draft). (see amendment in Chinese)

Article 9 of the current Enterprise Income Tax Law stipulates that the charitable donation expenditure of a company is deductible from its taxable income and the ceiling is 12% of its annual profit. On the other hand, Article 80 of the Charity Law of the People’s Republic of China (see Law in Chinese) as adopted by the NPC on 16 March 2016 stipulates that natural persons, legal persons or other organisations that donate assets for charitable purposes are eligible for tax benefits. If the charitable donation expenditure of a company exceeds 12% annually, the balance can be carried forward and deducted from the taxable income in calculating the enterprise income tax over the following three years.

According to the requirement that “preferential taxation policies are to be uniformly provided through specific taxation laws and regulations”, in order to further implement the legal principle of taxation and ensure alignment with the charity law stipulation on deduction of taxable income for charitable donations, the Ministry of Finance and the State Administration of Taxation have drafted and submitted the Amendment to the Enterprise Income Tax Law of the People’s Republic of China (Draft for Review) to the State Council and proposed that Article 9 of the Enterprise Tax Law be amended.

According to Xiao, the Legislative Affairs Office of the State Council has sought the opinions of related departments and social organisations on the Draft for Review and it has turned out that there are no differing opinions. On this basis, the Legislative Affairs Office, the Ministry of Finance and the State Administration of Taxation have together arrived at the Amendment to the Enterprise Income Tax Law of the People’s Republic of China (Draft). The Draft will amend Article 9 of the current Enterprise Tax Law to the effect that, deduction from taxable income will be allowed for a company’s charitable donation expenditure not exceeding 12% of its annual profit, and the balance exceeding 12% can be carried forward over the following three years.

Content provided by Picture: HKTDC Research
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