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Q:
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What are the regulations for high-tech enterprises and technology-based SMEs?
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A:
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Since January 1, 2018, enterprises qualified as high-tech enterprises or technology-based small and medium-sized enterprises (SMEs) are allowed to carry forward uncovered losses incurred in the five years prior to the year of qualification to make up for them in future years, with the maximum carry-over period extended from 5 years to 10 years.
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Q:
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What are the rules for relocating enterprise?
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A:
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If an enterprise has incurred unrecovered losses in previous years, if the enterprise ceased production and operation due to relocation and had no income, the year following the year of relocation to the year preceding the year in which the relocation was completed can be counted as the year of cessation of production and operation activities and subtracted from the statutory loss carry-forward period; if the enterprise is relocating and producing at the same time, the loss carry-forward years shall be counted consecutively.
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Q:
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What are the rules for restructured and reorganized companies?
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In the case of enterprise merger, if the conditions of special reorganization are met, all the enterprise income tax matters before the merger are succeeded by the merged enterprise after filing, and the losses of previous years, if they have not exceeded the statutory limit for making up, can be made up by the merged enterprise with the income related to the assets of the merged enterprise in subsequent years. In the special reorganization and spin-off of an enterprise, the tax affairs corresponding to the assets of the spun-off enterprise are inherited by the spun-off enterprise receiving the assets. The losses of the spun-off enterprise that have not exceeded the statutory period for recovery can be distributed in proportion to the proportion of the spun-off assets to the total assets, and the spun-off enterprise that receives the spun-off assets will continue to recover the losses.
The following formula is used to calculate the limit on the amount of losses that can be recovered from the consolidated enterprise in a given tax year = the fair value of the consolidated enterprise's net assets x the interest rate on the longest-term government bonds issued by the state as of the end of the year in which the consolidation took place.
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Q:
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What are the rules for start-up businesses?
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The year in which an enterprise begins operations is the year in which it begins to calculate profit and loss. The expenses incurred by an enterprise in organizing activities before engaging in production and operation shall not be counted as current losses.
Regarding the treatment of start-up expenses, if the start-up expenses are not explicitly listed as long-term standby expenses, the enterprise can deduct them once in the year when the business starts, or according to the new tax law on the treatment of long-term standby expenses, but once selected, they cannot be changed.
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Q:
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What are the rules for partners in corporations and other organizations?
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If the partners of a partnership are legal persons or other organizations, the partners may not use the losses of the partnership to offset their profits in calculating their corporate income tax liability.
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Q:
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What are the special provisions for the outbreak period?
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A:
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The maximum carry-over period for losses incurred in 2020 by enterprises in industries in difficulty affected by the epidemic has been extended from 5 years to 8 years.
Enterprises in industries in difficulty are classified into four categories: transportation, food and beverage, accommodation, and tourism (travel agency and related services, and management of scenic spots), with specific criteria in accordance with the current Industrial Classification of the National Economy. Enterprises in industries in difficulty must account for at least 50% of their total revenue (excluding non-taxable income and investment income) in 2020.
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