Accelerated Depreciation of Fixed Assets

Date:  2015-11-12    Autor:  ECOIVS Ruide Marketing Team

According to the decision of the State Council on September 17, 2015 the Ministry of Finance and State Administration of Taxation jointly issued the “Circular on Further Improving the Enterprise Income TaxPolicies relating to the Accelerated Depreciation of Fixed Assets”(Cai Shui [2015] No. 106) (hereinafter “Document No. 106”). Furthermore, onSeptember 25 the State Administration of Taxation published the “Announcementof the State Administration of Taxation on Issues concerning further improvingthe Enterprise Income Tax Policies relating to the accelerated depreciation ofFixed Assets” (Announcement of the State Administration of Taxation [2015] No.68) (hereinafter “Announcement No. 68”). On September 30, Deputy DirectorGeneral of the Income Tax Department, State Administration of Taxation Mr. LiuBao Zhu, during a press conference answered journalists' questions whichadditionally helped to deeper understand practical implications.

(1)     The scope of applicableenterprises extended:
First in Cai Shui [2014] Announcement No. 75, the regulation covered sixindustries:

     Biopharmaceutical manufacturing,

specialized equipment and

railway, ships, aerospace and other transportation equipment    manufacturing;

the manufacturing of computers, communication / other electronic    equipment as well as

manufacturing of instruments, meters and information transmission;

software and information technology services.

On this basis, Document No. 106 and Announcement No.68 further expanded the scope to four key industries, specifying detailed theirscope:


       Light industry;

  Textile industry;

  Machinery and

  Automobile industries;


(a)  An enterprise belongs tothese four industries if one of the four industries comprises its mainbusiness;

(b)  And if more than 50% out ofits gross income generated out of its main business is invested in fixed assets

(c)  Basis of calculating those50% is the time in which the fixed assets are newly bought and put to use.

(d)  Any changes in following yearsdo not interfere with any previously enjoyed tax preference.

(2)          Methods of accelerated depreciation:

After January 1, 2015, the enterprise may opt for areduced depreciation period or adopt an accelerated depreciationmethod. Where an enterprise shortens the depreciation period, in respect offixed assets which are newly purchased, the minimum depreciation period shallnot be less than 60% of the depreciation period specified in Article 60 of theImplementing Regulations.

Fixed assets’ minimum depreciation period shall notbe less than 60% of the remaining period which is the minimum depreciationperiod specified in Article 60 of the Implementing Regulations minus the yearsof service.

Where an enterprise adopts an accelerateddepreciation method, it may use the double declining balance method or the sumof the years' digits method.

As explained during the press conference, inpractice, the date for the purchased equipment is decided by the date of theissued invoice. For equipment paid by installments or on credit, it is decidedby the date of delivery. For fixed assets built/ assembled by the enterpriseitself, in principle it is decided by the date of completion.

(3)          Special treatment for small, low-profit


a)    In respect of equipment andinstruments which are newly purchased by small low-profit enterprises afterJanuary 1, 2015 for common R&D and production purposes, and if the unitprice is below CNY 1 mio. (incl.), the entire cost is deducted on a one-offbasis in calculating taxable income;

b)   If the unit price of suchnewly purchased equipment is above CNY 1 mio., enterprises may shorten thedepreciation period or adopt an accelerated depreciation method.

c)    Answers during the pressconference confirmed: even if the enterprise in question does not meet the criterionof a small low-profit enterprise in subsequent years after receiving a taxadvantage on their fixed assets there are no backdated adjustments.

(4)     Choices are in the hand ofthe enterprise:

An enterprise can chose whether to implementaccelerated depreciation policies, based on manufacturing and business needs.Furthermore the enterprise may select one of the preferential policies foraccelerated depreciation in cases in which requirements and conditions ofDocument No. 106 and Announcement No. 68 and for the earlier regulationsaccording to Guo Shui Fa [2009] No. 81 or Cai Shui [2012] No. 27are met.

(5)            Method of enjoying the policy:

(a)  For purchases for which thepolicy is relevant and that were made in the first three quarters of 2015 preferentialtreatment may be enjoyed at the time of filing prepaid enterprise income tax inthe fourth quarter of 2015 OR at the time of calculating and paying enterpriseincome tax for 2015.

(b)  The qualified taxpayercan directly enjoy this preferential policy when filing prepaid or final settlementof enterprise income tax. Approvalfrom tax authorities is not necessary.

Remarks: Enterprises shall retain invoices for thepurchase of fixed assets, vouchers, and other relevant information for futurereference, and establish account books which accurately reflect thediscrepancies between tax law and accounting.

Our observations and suggestions

Document No. 106 and AnnouncementNo. 68 re-flect the efforts of the Chinese government to pull effectiveinvestments, promote industrial upgrading, and accelerate the development ofregulations and a business environment fitting China’s needs.

Enterprises can control theindustry directory and their own business conditions with the help of DocumentNo. 106, so as to determine whether to comply with the accelerated depreciationpolicy. But it is not advised that all qualified enterprises should chooseto enjoy this policy. Instead, they need to consider other tax incentives forexample whether applying for incentives should be considered over thepossibility of waving non-payed taxes after a certain time period if makinglosses. Most important, enterprises need not to forget to pay attention toaccounting and tax differences brought about by the accounting and compliancerisk.

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