Related Regulations on Business Entertainment Expense in China
Business entertainmnet expenses refer to the various entertainment expenses paid by enterprises for the reasonable needs for daily operation, which mainly include expenses incurred in business negotiation, product promotion, external liaison, public relations, conference reception, etc.
In the practice of tax law enforcement in China, business entertainment expenses mainly include expenses for banquets or work meals for the operation, and the expenses for souvenirs and visiting scenic spots, as well as the travel expenses of business-related personnel, etc. In general, gifts purchased by the enterprises for giving shall be recorded as business entertainment expenses, however, if the gifts are self-produced or through external processing, which can help to mark and propagandize the image and products of the enterprises, then the expenses are allowed to be deducted with a limit as business publicity expenses.
1. Regulations on deduction ratio of business entertainmnet expenses
(1) Deduction ratio
According to China’s Corporate Income Tax Law, the business entertainment expenses related to the operation of enterprises can be deducted at 60% of the total incurred amount, but shall not exceed 5?of the sales income of the curent year. The deduction base for business entertainment expenses is the total sales revenue of the enterprise(include main business income, other business income, income regarded as sales revenue), whereas non-operating income such as income from fixed assets sale, government subsidy income are excluded.
Enterpeises engaged in equity investment(include headquarter of group company, venture capital enterpeise, etc.), the divedends and equity transfer income distributed by the invested enterpeises can be regarded as the deduction base for business entertainment expenses.
(2) Special regulation for establishment period
Business entertainment expenses incurred in establishment period shall be recorded as enterprise preparation expenses at 60% of the actual expenses, which are allowed to be deducted in accordance with related regulations.
2. Differences between business entertainmnet expenses and other expenses
(1) Differences between business entertainmnet expenses and delayed meal allowance & meal expenses
Business entertainmnet expenses mainly refer to expenses for business expansion, the consumption person is outside of the enterprise; Delayed meal allowance refers to the the compensation paid the enterprise for the employees eat out for business trip; Meal expenses refer to the expenses paid by enterprises for employees dine together for holidays. The consumption person of the latter 2 expenses are employees, commonly they shall be recorded as walfare expenses.
(7) Differences between business entertainmnet expenses and coference expenses
In general, conference expenses include accommodation, meals, conference venue rental, transportation, document printing fees, etc. The reasonable conference expenses shall be deducted before the calculation of CIT at full amount, which shall be differentiated from business entertainment expenses strictly, and business entertainment expenses shall not be recorded as conference expenses.
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