On 7 May 2018, the Ministry of Finance of the People’s Republic of China and the State Administration of Taxation jointly released the Notification about the Policy of Enterprise Income Tax Deduction for Equipment “CAISHUI [ 2018] No. 54”, a new policy regarding enterprise income tax.
It states that “If the new acquisition of plant or equipment does not exceed RMB five million per unit, which the company acquired between 1 January 2018 and 31 December 2020, the acquisition cost is allowed to be deducted from taxable income in full, instead of deducting via the asset’s annual depreciation. If the unit price exceeds RMB five million, it shall still follow the previous Regulations of the Enterprise Income Tax Law, which are CAISHUI  No. 75, CAISHUI  No. 106, and other relevant regulations.
According to the Announcement on Extending the Implementation Period for Some Preferential Tax Policies (CAISHUI  No. 6 released by the Ministry of Finance and the State Administration of Taxation on 15 March 2021), where the preferential tax policies specified in “CAISHUI [ 2018] No. 54″have expired, the implementation period will be extended to 31 December 2023.
Summary of one-time deduction policy for fixed assets
|Unit Price （ RMB ）||Item||Condition||Purpose||Purchase time ||Apply to|
|≤ 5,000||Fixed Assets||Held||Unlimited||Since 2014.01.01||All industries|
|≤ 1,000,000||Equipment||New purchases||Research and Development (R&D)||Since 2014.01.01||All industries|
|≤ 1,000,000||Equipment||New purchases||Both R&D and Business Operating||Since 2014.01.01||Small and low-profit enterprises in six particular industries |
|≤ 1,000,000||Equipment||New purchases||Both R&D and Business Operating||Since 2015.01.01||Small and low-profit enterprises in four key industries |
|≤ 5,000,000||Equipment||New purchases||Unlimited||2018.01.01 to 2023.12.31||All industries|
 The purchase time: fixed assets purchased in the monetary form shall be recognised based on the invoice date, except those purchased by instalment or credit sales; fixed assets purchased by instalment or credit sales shall be recognised by arrival date; self-built fixed assets shall be recognised according to the completion time.
 Six particular industries: Biopharmacy; Special equipment manufacture; Railway, vessel, aerospace and other transport equipment manufacture; Computer, communication and other electronic equipment manufacture; Instrument and meter manufacture; Information transmission, software and information service.
 Light, Textile, Mechanical, Automobile.
The analysis of the policy is mainly attributed to the following key aspects:
There is no industry restriction, meaning the new policy applies to all industries. Since partnerships and sole traders are exempted from enterprise income tax, the new policy is not applicable.
The term “new acquisition”refers to either a brand-new purchased item or a second-hand item.
It refers to fixed assets except for constructions in progress and buildings.
If a company is a general taxpayer, there are two situations according to the types of fapiao: 1. when the fapiao is a special VAT fapiao, the unit price should exclude VAT, as the special VAT is deductible and 2. when the fapiao is a regular VAT fapiao, the unit price should include VAT, as the regular VAT is non-deductible.
If a company is a small-scale taxpayer, the unit price shall include VAT, as small-scale taxpayers cannot deduct input tax.
Fixed assets shall be deducted before tax in the year following the month they are put into use.
If a company chooses to enjoy the one-time pre-tax deduction policy, the tax treatment of its assets may be inconsistent with the accounting treatment.
A company can enjoy the one-time pre-tax deduction policy according to their production and operation accounting needs. Those who do not choose to enjoy the one-time pre-tax deduction policy may not be changed in subsequent years.
The one-time deduction policy for fixed assets under RMB five million applies to all industries. The extension of the implementation period is undoubtedly good news for enterprises that can continue enjoying the benefits of pre-tax deductions to ease the cash flow pressure. One thing to note is that when applying the policy, for the temporary difference between the tax deduction and accounting treatment, the relative deferred income tax needs to be confirmed.