Accountancy in China

>> Allowances in China


Depreciation on fixed assets shall generally be accounted for on an average basis under the straight line method.

Depreciation rate of the fixed assets shall be calculated and determined on the basis of the original cost, estimated residual value and the useful life of the fixed assets. Estimated residual value is 10% of the original cost.

Since January 1st, 2008, the useful lives of the fixed assets have changed as follows:

  • The useful life of buildings and structures is no less than 20 years.
  • The useful life of airplanes, trains, ships, machinery and other equipment for production is no less than 10 years.
  • The useful life of instruments and furniture is no less than 5 years.
  • The useful life of transport facilities is no less than 4 years exclusive of airplanes, trains and ships.
  • The useful life of electronic equipment is no less than 3 years.

Tax credits

Since January 1st, 2008, the foreigninvested enterprises have had no access to preferential income tax policies. The income tax on the enterprise shall be computed on the taxable income at the rate of 25%.

Arm’s length principle

Tax evasion is rampant in China. An earlier figure suggests that illegal tax avoidance may have resulted in an average loss of 30 billion Yuan (US$3.6 billion) a year just by multinationals. 60% of the tax evaded is through abusing transfer pricing to shift Chinese subsidiaries’ profits to overseas parent companies. China therefore adopts the Arm’s Length principle, which means treating related parties as independent parties. An Advance Pricing Arrangement (“APA”) is also used by Chinese tax authorities as an alternative to the traditional dispute resolution process,

e.g. transfer pricing audit and defence. Since the first introduction of the APA concept in 1998, under the Transfer Pricing Regulation (widely known as “Circular 59”), around 130 APAs (all unilateral) have been concluded in various regions/cities such as the Pearl River Delta (including Shenzhen), Shanghai, Tianjin, Qingdao,

Dalian, and Xiamen.  In 2004, the State Tax Administration (STA) issued Rules on Advance Pricing Arrangements.

Latest version updated 12th March 2018

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