1. Definition of Government Subsidy
   
   Government subsidy refers to the monetary or non-monetary assets received by enterprises from government, which mianly includes gratuitous appropriations for enterprises, tax refunds, financial discounts and non-monetary assets to enterpises gratis.
   
   

   1)	Gratuitous Appropriations Financial gratuitous appropriations refers to the funds allocated by government to enterprises gratis, which is usually specified the purposes when the appropriation is made. For example, special funds for the purchase and construction of fixed assets or technological transformation, incentive payments for encouraging enterprises on employees placement, fixed grain subsidies, and funds allocated to enterprises for Research & Development.
   2)	Tax Refunds According to relevant regulations, government will refund taxes to enterprises by returning after collecting or by levy-and-refund, which is regarded as a government subsidy given in the form of preferential taxation. However, some economic resources which are not involved direct trasferation of assets will not be regarded as government subsidies, such as direct reduction on tax, exemption, increase tax deduction, partial tax credit and so on.
   3)	Financial Discount Financial discount refers to government subsidies to enterprises for interest on bank loans to support the development of specific fields or reregions, in accordance with the country’s macroeconomic and policy objectives. The forms of subsidies include direct payment to beneficiary enterprises and payment to lending banks.
   4)	Non-monetary assets to enterprises gratis Mainly administrative allocation for usage rights of land, wildwood and so on.

   
   
2. Classification of Government Subsidies and Accounting Treatment
   
   

   1)

   Government subsidies related to assets It refers to government subsidies obtained by enterprises for purchase and construction or to form long-term assets in other ways. Accounting treatment: The government subsidies related to assets should offset the book value of that related assets or be recognized as deferred income. If the relevant assets is recognized as deferred income, it should be included in the profit and loss in stages according to a reasonable and systematic method within its useful life. If the government subsidies is measured at nominal amounts, it should be directly included in the current profit and loss. If the relevant asset is sold, transferred, scrapped or damaged before the end of its useful life, the undistributed balance of relevant deferred income should be transferred to the current profit and loss of asset disposal.

   2)

   Government subsidies related to income All other government subsidies are classified into income-related except the aforementioned one. Such subsidies are mainly used  to compensate enterprises for expenses or losses that have occurred or are about to occur. Accounting treatment: Government subsidies used to compensate enterprises for future related costs or losses, it should be recognized as deferred income and included in the current profits and losses or offset the relevant costs during the period when recognized. Government subsidies used to compensate enterprises for related costs or losses have occurred, it should be included in the current profits and losses or offset the relevant costs directly. For government subsidies which include both asset-related parts and income-related parts, different parts should be separately accounted for. For those that is difficult to distinguish, they should be classified as income-related government subsidies as a whole.

   
   
3. Tax Treatment for Government Sbusidies
   
   The fiscal funds should be included in the total income if enterprises obtain from financial departments of governments at or above the county level and other departments. It can be regarded as non-taxable income and deducted when calculating the taxable income if it meets the following conditions at meanwhile:
   
   

   1)	Enterprises can provide a fun disbursement document in which the special purpose of the funds is stated clearly.
   2)	The financial department or other government departments that allocate the funds have specific management method or management requirement for the funds.
   3)	Enterprises separately account for the funds and expenditures incurred by it.

   
   When using the government subsidies eligible for aforementioned conditions, the expenses incurred duting expenditure or the depreciation and amortization calculated after the formation of assets is not deductable in calculating taxable income. Nor can it enjoy the tax benefits of additional deduction as R&D expenses.
   

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