News updates: Accelerated Depreciation Policy Fine-tuned for Fixed Assets

On 20 October 2014, the Ministry of Finance and the State Taxation of Administration of China jointly issued Notice of Complementing Corporate Income Tax Policy of Accelerated Depreciation for Fixed Assets (Caishui [2014] No.75. or “Notice 75”)1.

According to Notice 75, for corporate income tax purposes, accelerated depreciation can be accomplished by way of either (i) full deduction, or (ii) shortened depreciation periods or accelerated depreciation methods.

Full deduction

Fixed assets are eligible for full deduction, rather than being annually depreciated, if they fall into one of the categories below:

1. The fixed asset has a unit cost equal to or less than RMB5,000; 
2. The fixed asset is apparatus or equipment purchased after 1 January 2014 for the specific purpose of research and development (“R&D”) and has a unit cost equal to or less than RMB1,000,000; 
3. The fixed asset is apparatus or equipment purchased by “small-scale or small-profit enterprises” belonging to the “6 designated industries”2 after 1 January 2014 for the dual purposes of R&D and manufacturing operation, and has a unit cost equal to or less than RMB1,000,000.

Shortened depreciation periods or accelerated depreciation methods

Fixed assets are eligible for shortened depreciation periods or accelerated depreciation methods. If they fall into one of the categories below:

1. The fixed assets is apparatus or equipment purchased after 1 January 2014 for the specific purpose of research and development and has a unit cost more than RMB1,000,000; 
2. The fixed asset is apparatus or equipment purchased by “small-scale or small-profit enterprises” belonging to the “6 designated industries” after 1 January 2014 for the dual purposes of R&D and manufacturing operation, and has a unit cost more than RMB1,000,000.

Prevailing tax policies on fixed assets are still applicable to fixed assets not falling to any of the above categories.

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1. 财政部 国家税务总局 关于完善固定资产加速折旧企业所得税政策的通知
(http://www.chinatax.gov.cn/n810341/n810755/c1260992/content.html)

2. The 6 designated industries are (1) biopharmaceutical manufacturing, (2) special equipment manufacturing, (3) railroad, marine, aerospace and other transportation equipment manufacturing, (4) computer, communications and other electronic equipment manufacturing, (5) instruments and meters manufacturing and (6) information transmission, software and IT services.