The Ministry of Finance and the Administration of Taxation have upped the limit on deductible advertising and promotional expenses for manufacturers of cosmetics, pharmaceuticals and non alcoholic beverages in the country.
Prior to the recent changes the deductible amount for promotional expenses could not go above 15 percent of the company’s yearly turnover but the Chinese authorities have doubled this to 30 percent for an interim period that ends December 2010.
Although the company does not have to be Chinese to qualify, it has to manufacture its products in the country and not just import or distribute, explained Florence Xu from law firm CMS Cameron McKenna.
Companies affected by the downturn
Xu told CosmeticsDesign how the move was an attempt by the government to help out companies affected by the downturn.
“The tax circular was introduced after the economic downturn. The Chinese government has noted that these industries [cosmetics, pharmaceutical and beverage] have suffered a lot.”
In addition, these industries often spend a particularly large amount on advertising, promotion and marketing.
After 2010 the cap on expenses will be reduced back to 15 percent but if during the interim period the companies spend more than 30 percent on advertising and promotion then the excess can be carried forward to the following year.
Furthermore, the law firm noted that if qualifying companies have not included the new ceiling in this year’s calculations for corporate income tax, they can apply to be reimbursed in 2009.
“The move could represent quite a significant saving for companies operating in the country as they will be able to keep hold of more of their profits after tax,” Xu added.