In accordance with the “Regulations for the Implementation of the Individual Income Tax Law of the People’s Republic of China”, individual income tax required to be paid for individual’s income of wages and salaries (including wages, salaries, bonus, year-end bonus, labour dividends, subsidies, allowances and other income obtained through employment). However, do employees need to pay individual income tax for the epidemic prevention materials (including masks, goggles, antiseptic solution, gloves and protective suit, etc.) purchased and provided to employees by Chinese enterprises during the novel coronavirus pneumonia prevention period (hereinafter referred to as “epidemic prevention and control period”)? Can relevant expenses of enterprises be deducted in the calculation of enterprise income tax?  Kaizen summarized several hot points relating to taxes for employees get epidemic prevention materials in China for your reference.

Q:	Do employees need to pay individual income tax for the epidemic prevention materials, such as masks, alcohol, antiseptic solution and other epidemic prevention materials given by the employers during the epidemic prevention and control period?
A:	In accordance with the Announcement No. 10 issued by Ministry of Finance and State Administration of Taxation in 2020, medicine, medical supplies and epidemic prevention materials (excluding cash) provided to employees will not be regarded as income of wages and salaries and will be exempted from individual income tax starting from 1 January 2020.
Q:	What are the specific items of “Medicine, medical supplies and protective articles” stipulated in Announcement No. 10 issued by Ministry of Finance and State Administration of Taxation in 2020?
A:	According to the “Questions and Answers of Tax Preferential Policies for Epidemic Prevention and Control” issued by State Taxation Administration Tax Service Flatform, it is difficult to list all items of epidemic prevention supplies as there are many kinds of “Medicine, medical supplies and protective articles”. Such being the case, as long as the epidemic prevention related materials can be exempted from individual income tax.
Q:	Enterprises obtained VAT special invoices while purchasing epidemic prevention materials, whether the input VAT applicable to the item of “collective welfare” and cannot be deducted from output VAT?
A:	According to the “Questions and Answers of Tax Preferential Policies for Epidemic Prevention and Control” issued by State Taxation Administration Tax Service Flatform, epidemic prevention materials purchased for resumption of work can be regarded as labour protection appliance of special period. The relevant input VAT can be deducted from output VAT if the enterprises have obtained legitimate invoices.
Q:	Whether the expenses of epidemic prevention materials which are provided to employees during epidemic prevention and control period could be deducted in the calculation of enterprise income tax?
A:	According to the “Questions and Answers of Tax Preferential Policies for Epidemic Prevention and Control” issued by State Taxation Administration Tax Service Flatform, the expenses of epidemic prevention materials distributed to employees can be recorded as cost of current period as well as be deducted before calculation of corporate income tax. If enterprises pay epidemic prevention subsidies to the employees in cash, the cost can be deducted as welfare expenses based on specified ratio in the calculation of enterprise income tax.
Q:	Can the expenses of epidemic prevention materials be deducted before calculation of enterprise income tax if the invoices cannot be obtained?
A:	According to the “Announcement on Administration Measures of Pre-tax Deduction Vouchers for Corporate Income Tax” (Caishui 2018 No. 28) issued by State Administration of Taxation, if an enterprise’s domestic expenditure that belong to VAT taxable items, and  counter party is a unit that no need for tax registration or individuals who engage in petty and sporadic business, the expenses can be deducted before calculation of enterprise income tax based on invoices issued by tax authorities on behalf of them or receipt voucher and internal documents. The name of payee, the individual’s name and ID number, the expense items and the amount are required to be showed on the receipt voucher. Therefore, if the VAT invoices are unobtainable from a counter party who is a unit that no need for tax registration or individuals who engage in petty and sporadic business, the relevant costs can be deducted in the calculation of enterprise income tax based on receipt vouchers stated with necessary information.

If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.kaizencpa.com or contact us through the following and talk to our professionals: Email: info@kaizencpa.com,  enquiries@kaizencpa.com Tel: +852 2341 1444 Mobile : +852 5616 4140, +86 152 1943 4614 WhatsApp/ Line/ Wechat: +852 5616 4140 Skype: kaizencpa