Announcement of State Taxation Administration of The People’s Republic of China Municipality on Issuing the Measures for the Administration of Pre-tax Deduction Certificates of Enterprise Income Tax

Announcement of State Taxation Administration of The People’s Republic of China on Issuing the Measures for the Administration of Pre-tax Deduction Certificates of Enterprise Income Tax State Taxation Administration of The People’s Republic of China Announcement No.28 of 2018 In order to strengthen the administration of pre-tax deduction certificates of enterprise income tax, standardize tax law enforcement and optimize the business environment, State Taxation Administration of The People’s Republic of China has formulated the Measures for the Administration of Pre-tax Deduction Certificates of Enterprise Income Tax, which are hereby promulgated. It is hereby announced. State Taxation Administration of The People’s Republic of China, June 6, 2018 Measures for the Administration of Pre-tax Deduction Vouchers of Enterprise Income Tax Article 1 In order to standardize the administration of pre-tax deduction vouchers of enterprise income tax (hereinafter referred to as "pre-tax deduction vouchers"), these measures are formulated in accordance with the Enterprise Income Tax Law of People’s Republic of China (PRC) (hereinafter referred to as "Enterprise Income Tax Law") and its implementing regulations, the Law of People’s Republic of China (PRC) on the Administration of Tax Collection and its implementing rules, and the Measures for the Administration of People’s Republic of China (PRC) Invoices and its implementing rules. Article 2 The "pre-tax deduction vouchers" as mentioned in these Measures refer to all kinds of vouchers that an enterprise proves that reasonable expenses related to income acquisition actually occurred when calculating the taxable income of enterprise income tax, and based on which pre-tax deduction is made. Article 3 Enterprises mentioned in these Measures refer to resident enterprises and non-resident enterprises as stipulated in the Enterprise Income Tax Law and its implementing regulations. Article 4 Pre-tax deduction vouchers shall follow the principles of authenticity, legality and relevance in management. Authenticity refers to the authenticity of the economic business reflected by the pre-tax deduction certificate, and the expenditure has actually occurred;Legality means that the form and source of the pre-tax deduction certificate comply with the relevant provisions of national laws and regulations; Relevance means that the pre-tax deduction voucher is related to the expenditure it reflects and has probative force. Article 5 When an enterprise incurs expenses, it shall obtain a pre-tax deduction certificate as the basis for deducting relevant expenses when calculating the taxable income of enterprise income tax. Article 6 An enterprise shall obtain a pre-tax deduction certificate before the end of the final settlement period stipulated in the enterprise income tax law of the current year. Article 7 An enterprise shall keep the information related to the pre-tax deduction voucher, including the contract agreement, expenditure basis and payment voucher, for future reference, so as to verify the authenticity of the pre-tax deduction voucher. Article 8 Pre-tax deduction vouchers are divided into internal vouchers and external vouchers according to their sources. Internal vouchers refer to the original accounting vouchers made by enterprises for the accounting of costs, expenses, losses and other expenses. The filling and use of internal vouchers shall comply with the relevant provisions of national accounting laws and regulations. External vouchers refer to the vouchers obtained by enterprises from other units and individuals to prove the occurrence of their expenses when they have business activities and other matters, including but not limited to invoices (including paper invoices and electronic invoices), financial bills, tax payment vouchers, payment vouchers, split sheets, etc. Article 9 If the expenditure items incurred by an enterprise in China belong to VAT taxable items (hereinafter referred to as "taxable items"), the other party is a VAT taxpayer who has gone through tax registration, and its expenditure is based on invoices (including invoices issued by tax authorities according to regulations) as pre-tax deduction vouchers;The other party is a unit that does not need to apply for tax registration according to law or an individual engaged in small-scale sporadic business, and its expenses are deducted before tax with the invoices or receipts and internal vouchers issued by the tax authorities. The receipts should contain the name of the payee, personal name and ID number, expenditure items, collection amount and other related information. The judgment standard of small-scale sporadic business is that the sales of individuals engaged in taxable items do not exceed the threshold stipulated by the relevant VAT policies. Where the State Administration of Taxation has other provisions on invoicing taxable items, the prescribed invoices or bills shall be used as pre-tax deduction vouchers. Article 10 If the expenses incurred by an enterprise in China are not taxable items, if the other party is the unit, other external vouchers other than invoices issued by the other party shall be used as pre-tax deduction vouchers; If the other party is an individual, the internal voucher shall be used as the pre-tax deduction voucher. Although the expenditure items incurred by enterprises in China are not taxable items, invoices can be issued according to the provisions of the State Administration of Taxation, which can be used as pre-tax deduction vouchers. Article 11 For the expenses incurred by an enterprise in purchasing goods or services from abroad, the invoice issued by the other party, receipt voucher with invoice nature and relevant tax payment voucher shall be used as the pre-tax deduction voucher. Article 12 An enterprise obtains invoices that are printed privately, forged, altered, invalidated, illegally obtained by the drawer, falsely made out and filled out irregularly (hereinafter referred to as "non-compliant invoices"), and other external vouchers that are not in compliance with national laws, regulations and other relevant provisions (hereinafter referred to as "non-compliant invoices""Non-compliant other external vouchers") shall not be used as pre-tax deduction vouchers. Article 13 If an enterprise should have obtained invoices and other external vouchers, or has obtained non-compliant invoices and other external vouchers, if the expenditure is true and has actually occurred, it should ask the other party to reissue and issue invoices and other external vouchers before the end of the annual settlement period. Invoices and other external vouchers that have been reissued or exchanged meet the requirements can be used as pre-tax deduction vouchers. Article 14 If an enterprise is unable to reissue or exchange invoices or other external vouchers due to special reasons such as cancellation, cancellation, revocation of business license in accordance with the law, and being recognized as an abnormal household by the tax authorities, the expenses can be deducted before tax after the authenticity of the expenses is confirmed by the following materials: (1) Proof of the reasons for the failure to reissue or exchange invoices or other external vouchers (including industrial and commercial cancellation and institutions) (2) Contracts or agreements on related business activities; (3) Payment vouchers paid by non-cash means; (4) Proof materials of cargo transportation; (5) Internal vouchers for goods warehousing and warehousing; (6) Accounting records and other materials of the enterprise. Items 1 to 3 of the preceding paragraph are necessary information. Article 15 After the end of the settlement period, if the tax authorities find that the enterprise should have obtained invoices and other external vouchers, or obtained non-compliant invoices and other external vouchers and informed the enterprise,The enterprise shall, within 60 days from the date of being informed, reissue or exchange invoices and other external vouchers that meet the requirements. Among them, if the other party is unable to reissue or exchange invoices or other external vouchers due to special reasons, the enterprise shall provide relevant information that can confirm the authenticity of its expenditures within 60 days from the date of being informed in accordance with the provisions of Article 14 of these Measures. Article 16 If an enterprise fails to reissue or exchange invoices and other external vouchers that meet the requirements within the prescribed time limit, and fails to provide relevant information to confirm the authenticity of its expenditures in accordance with the provisions of Article 14 of these Measures, the corresponding expenditures shall not be deducted before tax in the year in which they occur. Article 17 Except for the circumstances specified in Article 15 of these Measures, if an enterprise should have obtained invoices and other external vouchers in the previous year, and the corresponding expenses were not deducted before tax in that year, it will obtain invoices and other external vouchers that meet the requirements in the following year or provide relevant information to prove the authenticity of its expenses in accordance with the provisions of Article 14 of these Measures. The corresponding expenses can be retroactive to the pre-tax deduction in the year in which the expenses occurred, but the retroactive period shall not exceed five years. Article 18 If an enterprise and other enterprises (including affiliated enterprises) and individuals jointly accept the payable value-added tax services (hereinafter referred to as "taxable services") in China, they shall share the expenses according to the principle of independent transaction. The enterprise takes the invoice and the split sheet as the pre-tax deduction voucher, and other enterprises that jointly accept taxable services take the split sheet issued by the enterprise as the pre-tax deduction voucher.If the expenses incurred by enterprises and other enterprises and individuals in accepting non-taxable services in China are shared, the enterprises will use other external vouchers and split sheets other than invoices as pre-tax deduction vouchers, and other enterprises that jointly accept non-taxable services will use split sheets issued by enterprises as pre-tax deduction vouchers. Article 19 If the lessor issues invoices as taxable items for expenses such as water, electricity, gas, air conditioning, heating, communication lines, cable TV, internet, etc. incurred by an enterprise in renting (including the enterprise as a single lessee) office and production premises, the enterprise shall use the invoices as pre-tax deduction vouchers; If the lessor adopts the sharing method, the enterprise shall take other external vouchers issued by the lessor as pre-tax deduction vouchers. Article 20 These Measures shall come into force as of July 1, 2018.