1. Widened Scope of VAT Deductions
In Zai Shui Fa [2004] No.156, the Central government widened the scope of VAT (value added tax) deduction in certain industries in Northeast China. These industries include equipment manufacturing, petrochemical, metallurgical, ship manufacturing, auto and agricultural processing industry.
This policy allows items to be deducted from output VAT, which normally would not be allowed. The items which are deductible include previously paid VAT attributable to the purchase of fixed assets, assets contributed as part of an investment; purchase of raw materials to make fixed assets, services related to the construction of fixed assets and transportation fees paid for fixed assets. The VAT rate in China varies depending on the specific items, but the rate of 17% is the most common. This policy encourages companies to invest in fixed assets, while providing a significant monetary incentives encouraging the expenditures.
2. Accelerated Depreciation and Amortization
The Ministry of Commerce (MOFCOM) and the State Administration of Taxation (SAT) have authorized companies operating in Northeast China the ability to accelerate the depreciation rates of fixed assets. The depreciable terms of fixed assets can be shortened by up to 40% of the applicable depreciation term (physical structures are not included). Companies can also shorten the term of amortization of intangible assets. This applies to both intangible assets developed internally or acquired intangibles. The term of amortization, as with fixed assets, can be reduced by up to 40%. (If there are contractual agreements on the useful life of intangible assets, the amortization schedule must be followed).
For more information on China’s preferential tax policies, contact Lulu.Zhang@ChinaFIG.com
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