SAT Clarifies Implementation Issues for Corporate Income Tax

On February 22, the State Administration of Taxation published Circular 79 in an effort to clarify certain technical issues for corporate income tax purposes including the timing of income recognition, tax treatments for certain expenses, and the determination of tax basis for fixed assets.

This clarification relates tax treatment for expenses including those related to tax-exempt income, start-up expenses and business entertainment expenses.

Expenses related to tax-exempt income
Article 28 of the CIT law’s implementation rules states that expenses created by non-taxable income are not deductible for CIT purposes, but the article does not address the deductibility of expenses related to tax-exempt income.

Circular 79 further clarifies that, unless otherwise prescribed by relevant rules, expenses related to tax-exempt incomes should be deductible.

Start-up expenses
Under the previous Circular 98 issued in March 2009, a company can elect either to take a one-off deduction in the year when it starts to operate, or to amortize start-up expenses as long-term assets. Once an election is made, it cannot be changed.

Circular 79 stipulates that start-up expenses shall not be accounted for as the current period

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