Chinese tax authority: Policy reminder on accelerated depreciation of fixed assets

The Chinese tax authority issued a new policy on accelerated depreciation of fixed assets to promote technology innovation and economic development in China (Circular 75). This policy expands the scope of fixed assets that are eligible for accelerated depreciation methods for Corporate Income Tax (CIT) deduction purposes. This new policy allows manufacturing companies to accelerate cash flow through shorter fixed asset depreciation periods and encourages increased manufacturing investments in specific industries.

The new policy outlines key conditions for the accelerated depreciation and lump sum methods depreciation. Overall, the new policy will not change the total tax deduction of fixed assets investments. However, it can benefit start-up or middle-sized enterprises in the early stages of development through increasing after-tax cash flows. The rules encourage six specific high-technology industries, including:

• Biopharmaceutical industry
• Manufacturing of special machinery
• Manufacturing of transportation equipment for the railway, shipping, aviation, and aerospace industries
• Manufacturing of computers, telecommunications, or other electronic devices
• Manufacturing of instruments and meters
• Information transmission, software, and information technology services

Manufacturing companies that are planning to acquire additional equipment in China are encouraged to contact us to review their financial investment plans to determine if they can benefit from this new tax deduction policy. Please contact us for additional information.