Questions and Answers Regarding Deduction on Pre-tax Employee Welfare-Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

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Questions and Answers Regarding Deduction on Pre-tax Employee Welfare

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Q：	Are all pre-tax employee welfare deductible?
A：	No. According to Circular of the State Administration of Taxation on Deduction of Salaries and Employee Welfare Expenses of Enterprises, enterprise employees welfare expenses include: 1. Enterprises that have not yet separated social services, equipped with welfare departments, facilities, and staff costs, including employee canteen, bathroom, hair salon, clinic, nursery, sanatorium, which will bring expenses from repair and maintenance, staff’s salaries and wages of social services, social insurance, housing fund, labor cost and so on. 2. Benefits and non-monetary welfare issued, such as employees’ housing, health care, livelihood, transportation, and employees’ medical expenses on business trip, medical expenses for employees without overall medical planning, medical benefits for employees’ direct relatives who do not have financial income, benefits from heating supply, expenses of heat prevention and cooling facilities, employees’ difficulty subsidy, relief funds, canteen meals subsidy, transportation subsidy, etc. 3. Other regulations include other welfare expenses like funeral subsidy, pension, settling fee, and transportation fee for family visiting.
Q：	Are all beneficial subsidies deductible before business income tax as employee welfare?
A：	Not necessarily. In accordance with Announcement of the State Administration of Taxation on Pretax Deduction of Enterprise Wages, Salaries and Employee Welfare Expenses, beneficial subsidies that are listed in the policy of Enterprise Employee Salaries and Wages, permanently issued with employee’s salaries, which are eligible in terms of Circular of the State Administration of Taxation on Deduction of Wages and Salaries and Employee Welfare Expenses of Enterprises, could be deducted as wage and salary expenses based on relevant regulation. Subsidies that are not eligible in aforementioned regulations should incur pretax deduction at limited amount as employee welfare expenses.
Q：	Is employee welfare expense deductible before tax from a labor services agent?
A：	Yes. Based on Announcement of the State Administration of Taxation on Pretax Deduction of Enterprise Wages, Salaries and Employee Welfare Expenses, employing from other authorized companies may occur expenses and costs, such as salaries and wages that should be directly paid by the enterprise who hires employees. These salaries and wages expenses and employee welfare expenses, which are deductible before tax.
Q：	To meet industry needs, some enterprises employ abundant temporary workers and trainees, are the welfare expenses deductible before tax?
A：	Yes. Regulated as Announcement of the State Administration of Taxation on Several Tax Issues of Taxable income of Enterprise Income Tax, expenses incurred in hiring seasonal workers, temporary workers, trainees, and rehiring resigned or retired workers are deductible before business income tax, which should be in classification of wages and salaries expenses and employee welfare expenses.
Q：	What are the requirements for business accounting in pre-tax deduction on welfare expense?
A：	Required as Circular of the State Administration of Taxation on Deduction of Wages and Salaries and Employee Welfare Expenses, enterprises should set up relevant accounting books to make precise business accounting. For those do not own separate accounting books, tax authorities should instruct the enterprise to remedy during the regulated time of period. The Tax Authority could check and ratify employee welfare expenses of the enterprise due to overdue remedy.
Q：	Could employee welfare expense be fully deducted before enterprise income tax?
A：	No. Based on the rule of Regulations for the Implementation of Enterprise Income Tax Law of the People's Republic of China, deductible employee welfare expense incurred in enterprises should not exceed 14% of total amount of wages and salaries.

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