1. Based on total wages and salaries as the calculation base
1. The deduction rate for wages and salaries is 100%
Core rules: Full deductions from reasonable wages and salaries must comply with industry standards and personal tax withholding.
Scope that can be deducted: hourly wages, piece-rate wages, bonuses, allowances and subsidies, overtime and special circumstances wages.
Items not included in the total amount: retiree salary and benefits, one-child allowance, travel allowance, missed meal allowance and other tax-free subsidies.
2. The deduction rate for employee welfare fees is 14%
Core rules: No more than 14% of the total salary will be deducted, and any overspending will not be deducted or carried forward.
Scope that can be deducted: canteen operation, welfare facilities, physical examination fees, travel expenses to visit relatives, heatstroke prevention and cooling expenses, hardship subsidies, and funeral pensions.
Non-deductible scope: non-tax-preferred commercial insurance, employee travel expenses, super-standard cash benefits, private consumption of shareholders and employees, and super-standard welfare fees.
Accounting requirements: Set up a separate account of "Employee Salaries Payable – Employee Welfare Fees".
3. The deduction rate for union funds is 2%
Core rules: No more than 2% of the total salary will be deducted if a compliance certificate is obtained. Overspending will not be deducted or carried forward.
Deductible scope: trade union cultural and sports activities, training, and office expenses.
Requirements for deduction: It is necessary to obtain a "Special Receipt for Trade Union Fund Income" or a receipt for the tax authority to collect trade union funds.
4. The deduction rate for employee education funds is 8%
Core rules: no more than 8% of total salary can be deducted, and overspending can be carried forward indefinitely.
Deductible scope: job training, professional and technical training, continuing education, special training for R&D personnel, and purchase of teaching materials and equipment.
Non-deductible scope: social education tuition fees, executive EMBA tuition fees, and training expenses unrelated to the position.
Special discounts: Staff training fees for qualified software, integrated circuit design, technologically advanced services, and animation companies will be calculated separately and fully deducted; aviation company aircrew training fees and nuclear power generation company operator training fees will be fully included in the cost.
5. The deduction rate for supplementary pension insurance and supplementary medical insurance is 5%
Core rules: No deductions will be made if the amount exceeds 5% of the total salary, and no deduction will be made if the overspending is exceeded.
Deductible scope: Fees paid uniformly by qualified institutions for all employees.
Non-deductible scope: the portion of fees paid by only senior executives or a few individuals that does not comply with relevant national policies.
6. The deduction rate for party organization work funds is 1%
Core rules: State-owned enterprises and collective enterprises shall deduct within 1%, and the balance can be carried forward. The accumulated amount exceeding 2% of the total salary of the previous year shall not be deducted; non-public enterprises shall deduct within 1%, and there is no carryover provision.
Deductible scope: party organization learning and education, organizational life, theme activities, commendations and awards, and position construction expenses.
Accounting requirements: separate accounts should be set up, and the voucher should indicate "party organization work funds" (state-owned enterprises should first retain party dues expenses).
2. Based on sales (operating) income
7. Business entertainment expense deduction ratio 60% vs 5‰
Core rules: 60% of the actual amount incurred and the double limit of 5‰ of income, whichever is lower, will be deducted. Overspending will not be deducted or carried forward; during the preparation period, 60% of the actual amount incurred will be included in the preparation fee.
Deductible scope: customer negotiations, business banquets, and out-of-town customer reception expenses directly related to production and operations.
Non-deductible scope: private entertainment unrelated to business operations, entertainment expenses for shareholders’ personal consumption.
8. The deduction rate for advertising and business promotion expenses is 15% or 30%
Core rules: 15% for general enterprises; 30% for cosmetics manufacturing or sales, pharmaceutical manufacturing, and beverage manufacturing (excluding alcohol); overspending can be carried forward; the full amount of tobacco advertising expenses for tobacco enterprises shall not be deducted; and 15% shall be applied for beverage sales enterprises.
Special rules: If shared by related enterprises, the deduction limit of the grouped party is not limited, and the agreement must be submitted for tax filing.
Deductible scope: media advertising, promotional materials, promotion meetings, customized gift promotions with corporate logos, etc. that have advertising or promotional attributes.
9. General enterprise fee and commission deduction rate is 5%
Core rules: No deduction will be made for 5% of the revenue recognized in the service agreement or contract, and no deduction will be made for overexpenditure; excluding both parties to the transaction and their employees, agents and representatives.
Deductible scope: sales agency fees and handling fees of legal intermediaries or individuals.
Non-deductible scope: internal staff rebates, commissions, handling fees and commissions paid in cash (except for entrusted personal agents).
3. Use other specific bases as the calculation base
10. The deduction rate for public welfare donations is 12%
Core rules: No more than 12% of the annual total profit will be deducted, and overspending can be carried forward for 3 years.
Deductible scope: monetary/non-monetary donations recognized at fair value through government departments at or above the county level or public welfare social organizations announced by the Ministry of Finance, the State Administration of Taxation, and the Ministry of Civil Affairs.
Requirements for non-monetary donations: Provide legal certificates of fair value, which will be regarded as sales at the corporate income tax level; value-added tax may be exempted if the conditions are met.
Non-deductible scope: direct donations to recipients and donations to non-public welfare undertakings.
11. The deduction rate for insurance companies’ handling fees and commissions is 18%
Core rule: No more than 18% of the net premium income can be deducted, and excess expenses can be carried forward for deduction in subsequent years.
Net premium income: premium income-ceded premium-surrender fee
Deductible scope: fees and commissions from legal insurance agencies or individuals.
Non-deductible scope: illegal intermediaries, employee commissions of the company, and handling fees unrelated to premium income.
12. R&D expense deduction ratio 100%/200%; 120%/220%
Core rules: For non-negative list companies, R&D expenses that have not formed intangible assets and are included in current profits and losses will be deducted at 100% of the actual amount; those that have formed intangible assets will be amortized at 200% of cost. For qualified integrated circuit and industrial motherboard enterprises (2023-2027), R&D expenses that have not formed intangible assets and are included in current profits and losses will be deducted at 120% of the actual amount; those that have formed intangible assets will be amortized at 220% of the cost.
Deductible scope: direct R&D personnel labor, direct investment in R&D, depreciation of special instruments and equipment, amortization of intangible assets, etc.
Non-deductible scope: non-R&D activity expenditures, operating expenses unrelated to R&D, and depreciation of non-R&D-specific assets.
