To accelerate the upgrading and transformation of industries, in accordance with the decision made at the 105th Executive Meeting of the State Council, the Ministry of Finance and the State Administration of Taxation jointly issued the “Notice of the Ministry of Finance and the State Administration of Taxation on Further Improving the Corporate Income Tax Policy for Accelerated Depreciation of Fixed Assets.” Subsequently, the State Administration of Taxation released the “Announcement of the State Administration of Taxation on Issues Concerning the Further Improvement of the Corporate Income Tax Policy for Accelerated Depreciation of Fixed Assets,” clarifying key issues related to the corporate income tax policy and implementation guidelines for accelerated depreciation of fixed assets. A relevant official from the Income Tax Department of the State Administration of Taxation answered questions from reporters on this matter:

　　 I. What is the background for further refining the corporate income tax policy on accelerated depreciation of fixed assets?

　　Answer: Since last year, China’s economic growth has been facing downward pressure, with investment growth slowing and enterprises lacking sufficient investment momentum, thereby constraining enterprise development and industrial transformation and upgrading. In response to the new normal of economic development, in October 2014, the State Council’s Executive Meeting decided to implement an accelerated depreciation policy for fixed assets for enterprises in six sectors, including biopharmaceutical manufacturing and special equipment manufacturing. The implementation of this preferential policy has played a positive role in promoting technological innovation among enterprises, strengthening industrial transformation and upgrading, and driving China’s economy toward a mid-to-high-end development level.

　　To further boost effective investment and accelerate industrial upgrading, the 105th Executive Meeting of the State Council decided on September 16 this year to extend the preferential treatment of accelerated depreciation for fixed assets to four key sectors—light industry, textiles, machinery, and automobiles (hereinafter referred to as the “four key sectors”). This policy adjustment will benefit a broader range of enterprises and reach more companies. It is estimated that tax reductions will amount to 5 billion yuan this year. This initiative is of great significance in encouraging enterprises to expand investment, promoting the transformation and upgrading of traditional industries, and strengthening the momentum for economic development.

　　 II. What are the main components of the improved policy on accelerated depreciation of fixed assets?

　　Answer: According to the State Council’s decision to expand the scope of the preferential treatment for accelerated depreciation of fixed assets, the “Notice from the Ministry of Finance and the State Administration of Taxation on Further Improving the Corporate Income Tax Policy for Accelerated Depreciation of Fixed Assets” (Cai Shui [2015] No. 106, hereinafter referred to as Document Cai Shui No. 106) clearly outlines the enhancements made to the corporate income tax policy for accelerated depreciation of fixed assets. Specifically, these enhancements include: First, a policy is established for accelerated depreciation of fixed assets for enterprises in four key sectors—light industry, textiles, machinery, and automobiles. For fixed assets newly acquired after January 1, 2015, by enterprises in these four key sectors, the depreciation period may be shortened or an accelerated depreciation method may be adopted. Second, a special policy is introduced for small and micro-profit enterprises in the same four key sectors regarding accelerated depreciation of fixed assets. Specifically, for instruments and equipment jointly used for R&D and production operations acquired after January 1, 2015, by small and micro-profit enterprises in the light industry, textiles, machinery, and automobile sectors, if the unit value does not exceed RMB 1 million (inclusive), such assets may be fully written off as current-period expenses when calculating taxable income, without being depreciated over multiple years. If the unit value exceeds RMB 1 million, the depreciation period may be shortened or an accelerated depreciation method may be adopted. Third, enterprises are granted the option to choose whether or not to adopt the accelerated depreciation preferential policy, based on their own production and operational needs. Fourth, the policy’s effective date and the tax treatment for enterprises that failed to enjoy the preferential treatment during the first three quarters are specified. The accelerated depreciation policy for fixed assets takes effect from January 1, 2015. Enterprises that did not claim the benefit during the first three quarters of 2015 may uniformly claim it during the fourth-quarter provisional tax return filing for 2015 or during the annual corporate income tax final settlement for 2015.

　　 III. To implement the State Council’s policy on improving accelerated depreciation for fixed assets, what measures has the State Administration of Taxation taken?

　　Answer: Following the State Council’s executive meeting decision to expand the scope of the preferential treatment for accelerated depreciation of fixed assets, in order to ensure that this preferential policy is implemented as soon as possible, on September 17, the Ministry of Finance and the State Administration of Taxation jointly issued the “Notice of the Ministry of Finance and the State Administration of Taxation on Further Improving the Corporate Income Tax Policy for Accelerated Depreciation of Fixed Assets,” which clarified the specific details of the policy. To address specific operational issues, on September 25, the State Administration of Taxation released the “Announcement of the State Administration of Taxation on Further Improving Issues Related to the Corporate Income Tax Policy for Accelerated Depreciation of Fixed Assets” (State Administration of Taxation Announcement No. 68 of 2015, hereinafter referred to as “Announcement No. 68”), providing detailed regulations on the specific implementation guidelines and tax administration matters related to the policy. To facilitate taxpayers’ understanding and effective implementation by grassroots tax authorities, the State Administration of Taxation has conducted publicity and interpretation of the accelerated depreciation policy for fixed assets and related management issues through its official website and relevant media outlets. Moving forward, we will progressively carry out promotional training activities, revise tax return forms, enhance the tax filing system, strengthen post-policy management, and closely supervise localities to ensure the effective implementation of this preferential policy.

　 　IV. What standards are applied to key industries in the four sectors?

　　Answer: Given the broad coverage of the key industries in the four sectors—light industry, textiles, machinery, and automobiles—that are eligible for this policy, and in order to enhance policy certainty and facilitate practical implementation, a catalog-based management approach has been adopted for these four key sectors subject to the accelerated depreciation policy. The specific scope and codes of the light industry, textile, machinery, and automobile sectors eligible for the accelerated depreciation policy are directly listed in the annex to Document No. 106 issued by the Ministry of Finance and State Administration of Taxation. In the future, when the relevant national authorities update the Classification and Codes of National Economic Industries, the policy will be implemented accordingly based on the updated industry classification and codes.

　　 V. What are the implementation guidelines for enterprises in key industries across the four sectors that enjoy the accelerated depreciation policy?

　　Answer: Considering the situation in which enterprises engage in multiple lines of business, and to enhance the operational feasibility of the policy and ensure accurate identification of taxpayers’ respective industries, Announcement No. 68 stipulates that, when specifically identifying enterprises belonging to the four key sectors, the revenue indicator shall be used for determination. Specifically, enterprises in these four key sectors are those whose primary business activities fall within the light industry, textile, machinery, and automotive industries, and whose main business revenue generated in the year when fixed assets are put into use accounts for more than 50% (but not including) of their total revenue. Such enterprises are eligible to enjoy the accelerated depreciation policy.

　　In actual implementation, the following points should be noted: First, the revenue base shall be the total revenue—that is, the concept of total revenue as defined in Article 6 of the Corporate Income Tax Law—to avoid ambiguity when calculating the proportion of main business revenue. Second, when calculating the proportion of main business revenue, data from the year in which newly acquired fixed assets first begin to be used for production and operations should be employed. Third, during the course of production and operations, the proportion of main business revenue may change. To enhance the operational feasibility of the policy, the standard for determining whether an enterprise is eligible for preferential treatment shall be the data from the year in which new fixed assets are acquired and put into use. Any subsequent changes in later years will not affect the enterprise’s eligibility for the preferential policy.

　　 Six, why is the scope of the policy limited to fixed assets newly purchased after January 1, 2015?

　　Answer: According to the Corporate Income Tax Law, corporate income tax is collected and managed through annual calculation, monthly (or quarterly) provisional payments, and year-end final settlement. Considering that extending the scope of this policy to include enterprises’ existing fixed assets would entail complex accounting adjustments for businesses and place greater pressure on revenue reduction, we have, after comprehensive consideration of taxpayers’ ease of operation and fiscal affordability, limited the scope of this policy adjustment to newly acquired fixed assets purchased after January 1, 2015.

　 　7. How should the policy be interpreted with regard to newly acquired fixed assets? And how should the timing be determined?

　　Answer: This policy introduces an accelerated depreciation regime for fixed assets newly acquired after January 1, 2015. According to Document No. 106 and Announcement No. 68 issued by the Ministry of Finance and the State Administration of Taxation, the term “newly acquired” in reference to fixed assets should be interpreted from the following three perspectives: First, from the point of purchase—fixed assets purchased before January 1, 2015 are not considered newly acquired; second, from the perspective of the purchaser—whether the fixed assets purchased by a taxpayer are newly manufactured or previously used by the seller, from the purchaser’s standpoint, these assets are all regarded as newly acquired and thus eligible for the accelerated depreciation policy; third, from the perspective of acquisition method—fixed assets may be either externally purchased or self-built. Since the materials used in self-built fixed assets are actually purchased, the announcement explicitly treats self-built fixed assets as “acquired” fixed assets as well.

　　The timing of acquiring fixed assets varies depending on the acquisition method. In practice, when a company purchases equipment, the date of acquisition should be determined by the date the equipment invoice is issued. If the equipment is acquired through installment payments or credit sales, the date of acquisition shall be the date the equipment arrives at the site. For fixed assets constructed internally, the acquisition date is, in principle, the date when the construction project is completed and the final settlement is finalized.

　　 8. What accelerated depreciation methods are specified in this policy?

　　Answer: This policy stipulates that eligible fixed assets may either adopt the method of shortening the depreciation period or employ other accelerated depreciation methods. The purpose of doing so is to recover the cost of fixed assets as quickly as possible, accelerate the turnover of enterprise funds, and encourage enterprises to increase their investment. In practical implementation, the following points should be noted:

　　First, for enterprises adopting the method of shortening the depreciation period, two different tax treatment approaches shall be applied depending on whether the newly acquired fixed assets are already in use. Announcement No. 68 stipulates that for newly acquired fixed assets, the minimum depreciation period shall not be less than 60% of the depreciation period prescribed in the Implementation Regulations of the Corporate Income Tax Law. For fixed assets that have already been in use when acquired, the minimum depreciation period shall not be less than 60% of the remaining depreciation period after deducting the number of years already used from the minimum depreciation period prescribed in the Implementation Regulations of the Corporate Income Tax Law.

　　Second, enterprises that adopt other accelerated depreciation methods may also choose either the double-declining balance method or the sum-of-the-years'-digits method. The double-declining balance method and the sum-of-the-years'-digits method are explicitly stipulated in the “Notice of the State Administration of Taxation on Issues Concerning the Income Tax Treatment of Accelerated Depreciation of Enterprise Fixed Assets” (Guo Shui Fa [2009] No. 81). Specific calculation procedures shall be carried out in accordance with the relevant provisions of Document Guo Shui Fa [2009] No. 81.

　　 9. Will the accelerated depreciation policy continue to provide special preferential treatment for small and micro-profit enterprises in key industries across four sectors?

　　Answer: Given the special role played by small and micro-profit enterprises in areas such as employment and entrepreneurship, and taking into account their unique situation of shared use of instruments, equipment, R&D, and production operations, this policy introduces special preferential measures for small and micro-profit enterprises in four key sectors. Announcements No. 106 and No. 68 of the Ministry of Finance and State Administration of Taxation [2015] stipulate:

　　First, for small and micro-profit enterprises in key industries across the four sectors, instruments and equipment purchased after January 1, 2015, and used jointly for R&D, production, and operations, with a unit value not exceeding 1 million yuan, may be fully written off as current-period expenses when calculating taxable income—no longer subject to annual depreciation calculations. For equipment with a unit value exceeding 1 million yuan, enterprises may choose either to shorten the depreciation period or adopt an accelerated depreciation method.

　　Second, given that the scope and criteria for instruments and equipment used in enterprise R&D activities have been clearly defined in the “Notice of the State Administration of Taxation on Issuing the ‘Administrative Measures for Pre-tax Deduction of Enterprise Research and Development Expenses (Trial)’” (Guoshui Fa [2008] No. 116) and the “Notice of the Ministry of Science and Technology, the Ministry of Finance, and the State Administration of Taxation on Issuing the ‘Guidelines for the Identification and Management of High-tech Enterprises’” (Guokefa Huo [2008] No. 362), the scope and criteria for instruments and equipment used by small and micro-profit enterprises in their R&D activities shall be implemented in accordance with the provisions of Guoshui Fa [2008] No. 116 or Guokefa Huo [2008] No. 362, thereby ensuring consistency in the implementation standards of the income tax policies for enterprise R&D activities.

　　 10. If a company meets the criteria for a small, low-profit enterprise in the year it purchases a fixed asset and thereby enjoys relevant accelerated depreciation benefits, but exceeds the small, low-profit enterprise criteria starting from the following year, does the depreciation method for that fixed asset need to be adjusted?

　　Answer: If an enterprise meets the criteria for a small, low-profit enterprise in the year it acquires and uses fixed assets, it may no longer meet those criteria in subsequent years. To enhance policy certainty, if a small, low-profit enterprise enjoys accelerated depreciation benefits for fixed assets acquired in a given year under the relevant policy, even if the enterprise no longer qualifies as a small, low-profit enterprise in later years, the depreciation method for that fixed asset will no longer be adjusted.

　 　11. Can enterprises that meet the eligibility criteria choose not to adopt the accelerated depreciation policy?

　　Answer: After the implementation of the accelerated depreciation policy, some taxpayers may find that the depreciation expense for fixed assets deducted before tax differs from the depreciation expense recorded in their financial accounting, leading to complex tax adjustments. Moreover, given the long accounting periods associated with certain fixed assets, this could increase the burden of accounting and heighten compliance risks. Additionally, the reflection of a taxpayer’s production and operational performance might be somewhat affected. Consequently, listed companies and enterprise groups—driven by the need to disclose annual corporate performance or assess operational efficiency—tend to show limited enthusiasm for adopting the accelerated depreciation preferential policy. Furthermore, for enterprises experiencing losses or those benefiting from periodic tax exemptions, opting for the accelerated depreciation preferential policy holds little significance. Enjoying tax incentives is a right of taxpayers, and taxpayers are free to decide independently whether or not to take advantage of such incentives. To this end, Document No. 106 of the Ministry of Finance and State Administration of Taxation stipulates that enterprises, based on their own production and operational needs, may also choose not to avail themselves of the accelerated depreciation preferential policy.

　　 12. Can taxpayers independently choose an asset depreciation method that complies with tax laws?

　　Answer: According to current policy provisions, there are many tax policies for accelerated depreciation, such as allowing accelerated depreciation for fixed assets that are highly corrosive or subject to intense vibrations. Special accelerated depreciation policies are also in place for software and integrated circuit enterprises. Since last year, accelerated depreciation policies have been applied to six major industries—including biopharmaceutical manufacturing—and now, they are being extended to four key sectors as well. For a given enterprise, it may qualify for multiple accelerated depreciation policies. Given that enjoying tax incentives is a taxpayer’s right, taxpayers are free to make their own choices. To this end, Announcement No. 68 stipulates that if an enterprise’s fixed assets meet both the conditions of this preferential policy and those of other accelerated depreciation policies—for instance, the policies applicable to the software industry or the integrated circuit industry—the enterprise may choose to apply only one of these accelerated depreciation policies. Once a choice has been made, it cannot be changed.

　　 13. Does enjoying the tax incentive for accelerated depreciation of fixed assets require approval from the tax authorities?

　　Answer: To advance the reform of the tax administrative approval system and make it more convenient for taxpayers to enjoy the accelerated depreciation preferential policy, the tax authorities have abolished the approval requirement for “enterprises obtaining income tax incentives for accelerated depreciation or shortened depreciation periods for eligible fixed assets.” Eligible taxpayers can now directly enjoy this preferential policy when filing their provisional corporate income tax returns and final tax settlements, without needing to go through approval procedures at the tax authorities.

　　To ensure the proper implementation of preferential policies and guide enterprises in accurate accounting, Announcement No. 68 sets forth requirements for enterprises to enjoy the accelerated depreciation policy: Specifically, enterprises should retain for future reference invoices, accounting vouchers, and other relevant documents pertaining to fixed assets acquired, and establish management ledgers to accurately reflect any differences between tax laws and accounting standards.

　　 14. How can enterprises retroactively enjoy the accelerated depreciation benefit for fixed assets newly acquired in the first three quarters of 2015 if they failed to take advantage of it in a timely manner?

　　Answer: Under this new policy, enterprises in key industries across four sectors that newly acquire fixed assets after January 1, 2015, can enjoy accelerated depreciation benefits. For enterprises that, during the first three quarters of 2015, were entitled to but failed to claim the accelerated depreciation benefits as required, two approaches are available for handling their situation:

　　The first approach involves taking advantage of the accelerated depreciation benefit during the fourth-quarter 2015 provisional corporate income tax filing. Specifically, the portion of accelerated depreciation that should have been claimed but was not claimed in the first three quarters will be combined with the accelerated depreciation amount due in the fourth quarter and reported together on the fourth-quarter 2015 provisional corporate income tax return to calculate the applicable benefit.

　　The second approach is to claim the accelerated depreciation that was eligible but not claimed in the first three quarters during the 2015 corporate income tax annual final settlement and filing. Specifically, the portion of accelerated depreciation that was eligible but not claimed in the first three quarters will be adjusted for tax purposes during the 2015 corporate income tax annual final settlement and filing, and the benefit will be calculated and claimed uniformly.