Preferential tax treatment enjoyed by enterprise public welfare donation

Q: How is public welfare donation treated for tax deduction purposes? A: According to the provisions of Corporate Income Tax Law, Implementation Regulations of the Corporate Income Tax Law and Notice of the Ministry of Finances and State Administration of Taxation on Relevant Policies on Pre-tax Carryover Withholding of Corporate Income Tax of Public Welfare Donation (2018, notice No. 15), an enterprise may enjoy certain preferential tax treatment if it donates to charity or public welfare causes through public welfare social organizations, the people’s government above county level (including) and its departments and subordinate agencies.

According to the provisions, charitable donation expenditure incurred by an enterprise which does not exceed 12% of its total annual profit may be deductible; the part exceeding 12% of its annual gross profit is permitted to be carried over to the next three years for deduction at the time of calculating the taxable income. Meanwhile, when calculating and deducting the expenditures for public welfare donations, enterprises may deduct the donation expenditure carried over from the previous years, and also deduct the donation expenditure incurred in the current year.

The provisions above will be specifically understood as follows: (1) instead of simply equalizing the deductions over the next three years, the part exceeding the deduction limit of the current year is carried over within the pre-tax deduction limit of public welfare donation, which should be calculated in the next three years; and (2) the donation expenditure is carried over for deduction in the next three consecutive years, if it is not carried over completely within three years, the remaining donation amount must not be deducted before tax.

Zhao Miao is a partner and Lin Na is a senior counsel at AnJie Law Firm