EIT Tax Treatments Clarified

On February 27, 2009, the State Administration of Taxation issued the Circular on Issues Concerning Tax Treatments for Enterprise Income Tax ("EIT") (the "Circular"), effective, retroactively, January 1, 2008.  The Circular clarifies certain tax treatments as provided in the new EIT Law and its Implementing Regulations, so that enterprises can follow the specified tax treatments in their 2008 annual EIT filing and make informed decisions on their tax treatment options.  The Circular sets forth the treatment of certain taxable items incurred before the enforcement of the new EIT Law.  These include: treatment for fixed assets purchased before 2008, treatment for deferred income, interest, rent and royalty income recognized in accordance with the old EIT Law, treatment for the balance of the previous year's staff welfare expenses, education funds, wage funds and advertising expenses, treatment for losses caused by additional deduction of R&D expenses, and treatment for pre-start-up expenses. Enterprises should consider the tax treatments for the above items when filing their 2008 EIT returns.


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