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Q:
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What are the relevant tax policy provisions?
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A:
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According to Article 4 of the Announcement of the State Administration of Taxation on the Issuance of the Measures for the Administration of Pre-tax Deduction of Enterprise Asset Losses (Announcement of the State Administration of Taxation No. 25, 2011), the actual asset losses of an enterprise shall be declared and deducted in the year in which they have actually occurred and have been treated as losses in accounting; statutory asset losses shall be declared and deducted in the year in which the enterprise provides evidence and information to the competent tax authorities to prove that the asset has met the conditions for recognition of statutory asset losses and has been treated as losses in accounting (repealed in accordance with Announcement No. 15, 2018 on the submission of information related to the above article).
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Q:
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What is the basis for recognizing bad debt losses on enterprise receivables and prepayments?
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A:
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A contract, agreement or statement of related matters.
In the case of bankruptcy and liquidation of the debtor, an announcement of bankruptcy or liquidation by the People's Court.
In the case of a lawsuit, a judgment or award of a people's court or an arbitration award of an arbitration body, or a legal instrument that has been ruled by a court to be terminated (neutralized).
Where the debtor ceases to operate, there shall be proof of cancellation or revocation of the business licence by the industrial and commercial department.
In the case of death or disappearance of the debtor, a certificate of death or disappearance of the individual debtor from the public security organs and other relevant departments shall be required.
In the case of debt restructuring, a statement of the tax status of the debt restructuring agreement and its debtor's restructuring income.
If the debtor is unable to collect due to force majeure, such as natural disaster or war, a statement of the circumstances of the disaster and a waiver of the debt shall be required.
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Q:
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What about accounts receivable that are more than three years past due?
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A:
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Receivables that are more than three years past due by an enterprise and have been treated as losses for accounting purposes may be treated as bad debt losses, but the circumstances should be explained and a special report issued.
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Q:
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What about accounts receivable that are more than a year past due?
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A:
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If an enterprise is more than one year overdue and the single amount does not exceed fifty thousand dollars or one ten thousandth of the total annual revenue of the enterprise, the receivables, which have been treated as losses in accounting, may be treated as bad debt losses, but the situation should be explained and a special report should be issued.
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Q:
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What do I need to be aware of when filing my tax return?
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A:
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Enterprises declaring asset losses for deduction to the tax authorities only need to fill in the annual tax return of enterprise income tax, "Schedule of Pre-Tax Deduction and Tax Adjustment for Asset Losses", instead of submitting the information related to asset losses. The relevant information should be kept by the enterprise for reference.
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FAQ
