Tax-related Issues on Tax Deduction of Equipment & Appliance for
Micro, Small and Medium-sized Enterprises

To promote equipment renewal and technological upgrading of small and medium-sized enterprises, China's State Administration of Taxation recently issued an announcement clarifying that from January 1, 2022, to December 31, 2022, newly purchased equipment, and appliances with a unit value of more than 5 million yuan can be voluntarily deducted before enterprise income tax according to a certain proportion of the unit value.

1. Standards for micro, small and medium-sized enterprises
   
   

   (1)	Information transmission industry, construction industry, leasing, and business service industry: less than 2,000 employees, or operating income of less than 1 billion yuan or total assets of less than 1.2 billion yuan.
   (2)	Real estate development and operation: operating income of less than 2 billion yuan or total assets of less than 100 million yuan.
   (3)	Other industries: less than 1,000 employees or less than 400 million yuan of operating income.

   
   * The number of employees, including the number of employees who have established labour relations with the enterprise and the number of labour dispatch workers accepted by the enterprise.
   
   * Indicators of the number of employees and total assets should be determined according to the quarterly average of the enterprise for the whole year. The specific calculation formula is as follows:
   Quarterly average = (beginning of quarter + end of quarter) ÷2 Quarterly average for the whole year = Sum of the quarterly averages for the whole year÷4 Where business activities are opened or terminated in the middle of the year, the above-mentioned relevant indicators shall be determined by taking the actual business period as a tax year.
   
   
2. One-time pretax deduction restrictions for equipment and appliances beyond 5 million yuan
   
   

   (1)	Restrictions on the type of enterprise: limited to "small and   medium- sized enterprises" that meet the conditions specified in the announcement
   (2)	Time Limit: January 1, 2022, to December 31, 2022
   (3)	Fixed asset category restrictions: ① Limited to equipment and appliances, excluding buildings and houses. ② The implementing regulations of the Enterprise Income Tax Law stipulate that for equipment with a minimum depreciation period of 3 years, 100% of the unit value can be deducted before one-time tax in the current year; If the minimum depreciation period is 4 years, 5 years, 10 years, 50% of the unit value can be deducted before one-time tax in the current year, and the remaining 50% is deducted before tax in the remaining years according to regulations. Therefore, the one-time deduction of 100% of the unit value in the current year is limited to electronic devices that stipulate a minimum depreciation period of 3 years.
   (4)	Restrictions on acquisition methods: Limited to "new purchases", including purchases in money and self-construction.

   
   
3. The relevant provision of the “new acquisition”
   
   "New acquisitions" include purchases made by enterprises in monetary form or built by themselves.
   
   Confirmation of the purchase of fixed assets purchased in monetary form, in addition to the purchase of installments or credit, according to the invoice issuance time; Fixed assets purchased by way of installment payment or credit sales shall be confirmed according to the arrival time of the fixed assets; Self-constructed fixed assets shall be confirmed according to the completion settlement time.
   
   
4. Retain information for reference
   
   

   (1)	Information on the timing of the purchase of fixed assets (e.g., invoices for the purchase of fixed assets in monetary form, description of the arrival time of fixed assets purchased in installments or credit sales, description of the final accounts of the completion of self-built fixed assets, etc.).
   (2)	Accounting records for fixed assets
   (3)	Account for ledgers that differ from accounting treatments regarding asset tax treatment.

   
   

KAIZEN Group is equipped with experienced and highly qualified professional consultants and is therefore well positioned to provide professional advice and services in respect of the formation and registration of company, application for various business licences and permits, any compliance, tax planning, audit, and accounting in China. Please call and talk to our professional consultants for details.