You may wonder my company has no profit in the accounting book, however my accoutant paid the enterprise income tax. Is it her mistake?
Before to clarify this question, let us first take a look at the Chinese EIT tax calculation and payment.
In China, the enterprise income tax is paid quarterly in advance and calculated and settlement the annual EIT after the year ending;
Each quarter, the company calcluates the EIT on the basis of accouting profit and pays the EIT; EIT calculation as below.
(accounting profit - deductable loss in previous 5 years ) * applicable tax rate.
After the year ending, companies need to do annual EIT settlement on the baisis of taxable profit and pay/receive the lesspaid/overpaid EIT in quarters. Annual settlement EIT tax calculation as below.
(accounting profit - deductable loss in previous 5 years + adjustments according to tax regulations) * applicable tax rate.
In order to facilitate the enterprises, enterprises don't have to make separate accounting account to reflect each adjustment. Companies just reflect the adjustment in the sheet of annual settlement of enteprise income tax.
So,
Eventhough the annual settlement has a great relationship with the accounting profit, but is not equivalent to book profit. Because a company has more or less a tax adjustment amount.
For example,
The entertainment expense which can be fully recorded in the accounting book, and the accounting profit is fully written off. However, when calculating the income tax payable, if this amount exceeds the minimum value of the following two, the excess amount will be adjusted to increase the taxable profit.
1) 60% of the actually expense
2) 0.5% of revenue
Besides of entertainment expenses, there are also annual limits on employee welfare expenses and education funds, commission and advertising expenses, etc., if excess occurs, it also needs to be adjusted accordingly.
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