Accelerated depreciation of fixed assets, scope is expanded

4 min.

By Yi Wang, ECOVIS Ruide China

In October 2014, Ministry of Finance promulgated “Circular on Improving the Enterprise Income Tax Policies relating to the Accelerated Depreciation of Fixed Assets” (Cai Shui [2014] No.75). In November 2014, State Administration of Taxation promulgated “Announcement of the State Administration of Taxation on Issues concerning the Tax Policies for Accelerated Depreciation of Fixed Assets” (Announcement of the State Administration of Taxation [2014] No.64). These two documents expanded the scope of fixed assets which can adopt accelerated depreciation method. It will influence the annual enterprise income tax settlement of year 2004.

The key points include:

1. Enterprises in six industries
The six industries include: (1) biopharmaceutical manufacturing, (2) specialized equipment manufacturing, (3) manufacturing of railway, vessel, aerospace and other transportation equipment, (4) manufacturing of computer, communication equipment and other electronic equipment, (5) manufacturing of instruments and meters, (6) information transmission, software and information technology services.
For fixed assets purchased after January 1, 2014 by enterprises in the six industries, their depreciation years may be shortened or the accelerated depreciation method may be adopted.

2. Instruments and equipment purchased for research and development
For instruments and equipment purchased by enterprises in all industries after January 1, 2014 specifically for research and development, if their unit value is no more than CNY1 million, they may be included in the current costs and expenses on a one-off basis and deducted before the calculation of taxable income, and there is no need to annually calculate depreciation any more; if their unit value is more than CNY1 million, their depreciation years may be shortened or the accelerated depreciation method may be adopted.

3. Fixed assets with unit value of no more than CNY5,000
Fixed assets with unit value of no more than CNY5,000 held by enterprises in all industries may be included in the current costs and expenses on a one-off basis and deducted before the calculation of taxable income, and there is no need to annually calculate depreciation any more.
For the residual value of the depreciated fixed assets with an original unit value of no more than CNY5,000 held by enterprises before December 31, 2013, it may be deducted before the calculation of taxable income on a one-off basis after January 1, 2014.

4. Administration of declaring
When declaring the pre-paid tax, the enterprise shall submit the Statistical Form of Information on Pre-paid (Deducted) Tax on Accelerated Depreciation of Fixed Assets simultaneously. When carrying out an annual declaration, it shall be subject to a post facto filing administration, and shall submit the relevant materials as required.
The enterprise shall keep the materials relating to the purchased fixed assets including invoices, accounting vouchers and other relevant vouchers and proofs (in case of purchase of used fixed assets, the relevant statement on the years when the fixed assets were used shall be provided) for inspection, and shall make a statistical ledger to accurately book the differences between tax law and accounting.

Our observations and suggestions

– It is one of taxation policies which encourage the enterprises to upgrade technology and innovation.
– Enterprises shall determine whether they belong to the six industries according to their scopes of main business and percentage of main business revenue.
– Except the six industries, only the equipment purchased specifically for research and development can enjoy the policy of accelerated depreciation.
– The policy that fixed assets with unit value of no more than CNY5,000 held by enterprises may be included in the current costs and expenses on a one-off basis, will be beneficial to most enterprisest.
– Enterprises shall strictly follow the No. 64 Announcement, submitting the Statistical Form when declaring the pre-paid tax, and making a statistical ledger to accurately book the differences between tax law and accounting.

Contact person

Lawyer in Heidelberg, Richard Hoffmann
Richard Hoffmann
Lawyer in Heidelberg
Phone: +49 6221 9985 639
E-Mail