On 24 September 2014, the Standing Committee of the PRC State Council has made a decision to adjust the tax deduction policy in respect of fixed asset costs and depreciation in order to encourage investment in fixed assets. Afterwards, respectively on 20 October and 14 November 2014, two tax circulars, i.e. Caishui  No. 75 and SAT Announcement  No. 64 were issued by the PRC State Administration of Taxation (“SAT”) and the PRC Ministry of Finance to set out detailed rules. On 22 November 2014, the SAT also held a press conference
The new rules provide opportunities to tax payers to accelerate depreciation or deduction of fixed asset costs before corporate income tax (“CIT”). The details are as follows:
- Six selected industry sectors – accelerated depreciation for fixed assets acquired after 1 January 2014
For 6 selected industry sectors, the tax depreciation period of the fixed assets (including real estate) acquired after 1 January 2014 can be shortened by 40% as compared with the minimum depreciation period required by the current CIT Law. Alternatively, depreciation (for CIT purpose) can be accelerated by using the “double declining balance” method (双倍余额递减法) or the “sum of the years digits” (“年数总和法”) method. The qualified industries include the bio-pharmaceutical industry, special equipment manufacturing industry, transportation vehicle manufacturing industry, computer, telecommunication and other electronic product manufacturing industries, instrument and meter manufacturing industry, information transmission, software and IT service industry.
- All industry sectors – one-lump-sum cost deduction or accelerated depreciation for R&D equipments acquired after 1 January 2014
For all industry sectors, in respect of and equipments which were/are acquired after 1 January 2014 for R&D purposes, if the unit price is below RMB 1 million, the entire costs can be deducted before CIT during the purchasing year. In case the unit price is above RMB 1 million, the depreciation can be done within a period which is 40% shorter than the minimum depreciation period required by the current CIT Law or, as an alternative, the depreciation (for CIT purposes) shall be accelerated by using the “double declining balance” method or the “sum of the years digits” method.
- All industry sectors – one-lump-sum cost deduction for fixed assets with a unit price (original purchase price) of up to RMB 5000
For all industries, in respect of fixed assets with a unit price of up to RMB 5,000, the costs of such fixed assets can be deducted in one lump-sum before CIT during the year. The SAT explained in the press conference that this applies also to those fixed assets purchased before 1 January 2014.
- In the SAT Announcement  No. 64 and the press conference, the SAT clarified, inter alia, the following issues:
(1) How to determine whether a company belongs to one of the six industry sectors as mentioned in the above item 1? The SAT clarified that the National Economy and Industry Classification and Coding System (GB/4754-2011) shall be used as the standard. For such purpose, during a specific year, more than 50% of the company’s revenue shall fall into the above six industries.
(2) How to determine whether the fixed asset was acquired on or after 1 January 2014? The SAT explained that normally the invoice date shall be referred to. However, for those fixed assets purchased with a deferred payment or instalment payment term, the date of delivery shall be referred to. For those fixed assets developed by the company itself, the date when the construction is finished / accepted shall be referred to.
(3) Is it necessary to adopt the same accelerated depreciation policy in accounting in order to be able to claim accelerated depreciation before CIT? The SAT explained in the press conference that this is not required.
(4) The accelerated depreciation or one-lump-sum deduction is not subject to approval from the competent tax authority. Only certain simple documentation is required.
(5) The accelerated depreciation or one-lump-sum deduction tax treatment can already be done during the quarterly CIT declaration. It is not necessary to wait until the annual CIT declaration.
(6) For R&D equipments, if the super-deduction of R&D expenses also applies, the super-deduction (for CIT purpose) shall still be made based on the accounting depreciation of the relevant R&D equipments. At the same time, the tax depreciation of the R&D equipment can be made based on Caishui  No. 75 and SAT Announcement  No. 64.
The above regulations aim to postpone tax payments by allowing one lump-sum deduction or accelerated depreciation in respect of fixed assets for CIT purposes under certain conditions. For all companies in China, it is advisable to assess the financial impact of using such policies and decide whether and when to use them. Depending on the specific situation of a company, the best-choice strategy may be quite different.