On the issue of corporate donations

Donations within a certain amount, made through relevant state-regulated organizations, can be deducted before calculating taxable income.

Articles 6 and 7 of the Provisional Regulations on Enterprise Income Tax stipulate that when calculating taxable income, enterprises are allowed to deduct donations for public welfare and relief within 3% of annual taxable income; donations for public welfare and relief exceeding the amount of deduction allowed by the State, as well as donations for non-public welfare and relief, are not allowed to be deducted. According to Article 12 of the Implementing Rules of the Regulations on Enterprise Income Tax, the above public welfare and relief donations refer to the donations made by taxpayers to education, civil affairs and other public welfare undertakings as well as to natural disaster-stricken and poverty-stricken areas through non-profit-making social organizations and state organs in China; the donations made by taxpayers directly to the recipients are not allowed to be deducted. Due to the special nature of financial and insurance enterprises, the Ministry of Finance, State Administration of Taxation "on financial and insurance enterprises on income tax issues notice" (Cai Shui Zi [1994] No. 027) provides that enterprises for public welfare, relief donations should be in line with the relevant provisions of the state, in the current year not exceeding the standard of 1.5% of the enterprise's taxable income can be included in the non-operating expenditures, the calculation of enterprise income tax is allowed to deduct. Deduction is allowed when calculating the enterprise income tax, and the excess is adjusted when calculating the enterprise income tax.

The State Administration of Taxation's Circular on Pre-tax Deduction of Public Welfare Relief Donations from Enterprises and Other Social Forces to the China Social and Cultural Development Foundation (GuoShuiHuan [2002] No. 890) stipulates that, if enterprises and other social forces make donations to the following publicity and cultural causes through the China Social and Cultural Development Foundation, the amount of donations made by an enterprise income taxpayer is less than 10% of its annual taxable income, and can be deducted in the calculation of taxable income. Part, can be deducted in the calculation of taxable income: (a) the national key symphony orchestra, ballet, opera, Peking Opera Troupe and other national art performing groups of donations. (ii) Donations to public libraries, museums, science and technology museums, art museums, and memorial halls of revolutionary history. (C) Donations to key cultural relics protection units. (D) the cultural administration of the non-productive cultural centers or mass art museums to accept the public welfare activities, projects and cultural facilities and other donations.

Since 2000, the Ministry of Finance and the State Administration of Taxation, in several circulars such as the Circular on Issues Concerning Income Tax Policies on Donations by Enterprises and Other Social Forces to the Red Cross Cause (Cai Shui [2000] No. 30), have stipulated that donations made by enterprises to the Red Cross Cause, compulsory education in rural areas, the China Health Express Foundation, the Soong Ching Ling Foundation, and the construction projects of rural boarding schools shall be allowed to be fully deducted when calculating and paying enterprise Income tax is allowed to be fully deducted

Planning program

1.Comparison of tax on donation of cash and donation of in-kind goods

Example, enterprise A decides to donate donations valued at 50,000 yuan to enterprise B. There are two alternative ways of donating goods, one is to donate 50,000 yuan; the other is to donate goods with a fair value equal to 50,000 yuan. The enterprise is subject to an enterprise income tax rate of 33%. The enterprise applies a corporate income tax rate of 33% and a value-added tax rate of 17%. The cash outflow of the cash donation method is RMB 50,000 + 50,000 × 33% = RMB 66,500; the cash outflow of the donation of goods is RMB 50,000 + 50,000 × 17% + (50,000 + 8,500) × 33% = RMB 77,805. It can be seen that the enterprise donates cash can reduce the cash outflow.

2. Sell goods first and then donate cash way and direct donation of goods tax comparison

Example A enterprise decided to donate to enterprise B cost 9000 yuan of goods, the fair value of the market for 10000 yuan, the enterprise if the direct donation of goods way its accounting entries are:

Borrow: non-operating expenses 10700

Loan: inventory goods 9000

Taxes payable - VAT payable 1700

The income tax payable for this business is 10,700 × 33% = 3531 yuan, and its cash outflow is 10,700 + 3531 = 14,231 yuan.

If the goods are sold first and then the cash is given away then the accounting entries are:

When selling the goods:

Borrow: bank deposits 11,700

Credit: Revenue from main business 10,000

Taxes payable - VAT payable 1700

Borrow: Cost of main business 9000

Loan: Inventory goods 9000 When donating cash

Borrow: Non-operating Expenses 10,000

Loan: Bank Deposits 10,000

This business is liable for income tax (10,000+1,000)×33%=$3,630. The cash outflow of this business is 9000+10000+3630-11700=10,930 yuan. It can be seen that the donor enterprise in the conditions of the donation of cash at the equivalent of the market value of the donation is still the donation of in-kind cash outflow is high.

3. Donation of used fixed assets of different donation methods of tax comparison

According to the provisions of the value-added tax sales of used fixed assets, the selling price does not exceed the original value of the value-added tax can be exempted. If there is a dismantling and cleaning fee, it is better to be donated first; if there is no dismantling and cleaning fee, although it has no effect on the income tax paid by the donating enterprise, but from the consideration of the recipient unit, the method should also be adopted.

For example: an enterprise will have used a machine tool donated to enterprise B, the original value of 60,000 yuan, has been depreciated 10,000 yuan, 50,000 yuan donation, dismantling costs 2000 yuan. The use of the first sale of the gift method of its accounting entries for

(1) the net fixed assets to fixed assets cleanup

borrow: fixed assets cleanup 50000

accumulated depreciation 10000

credit: fixed assets 60000

(2) payment of cleanup costs

borrow: fixed assets cleanup 2000

Loan: Bank Deposit 2000

(3)Sell Fixed Assets

Borrow: Bank Deposit 50000

Out-of-Operation Expenses 2000

Loan: Fixed Asset Liquidation 52000

(4)Donate Cash to Enterprise B

Borrow: Out-of-Operation Expenses 50000

Loan. Bank deposits 50000

This activity is subject to income tax 50000 × 33% = 16500 yuan, the costs incurred in the cleanup as a loss in the sale process, may not be credited to taxable income; if the direct donation of machine tools, the cleanup costs of the donation of non-operating expenditures should be credited to taxable income, the income tax payable for 52000 × 33% = 17160 yuan. Can be seen, the use of first-sale gift to the enterprise is favorable.

4. Donation of intangible assets donation of different ways of tax comparison

Donation of intangible assets is treated as a sale, the need to pay business tax, the amount of business tax payable is recorded in non-operating expenditures, in the calculation of income can not be deducted before, increasing the amount of taxable income: and the first sale of intangible assets and then donate the cash to the corresponding non-deductible non-operating expenditures do not include the amount of business tax payable, can be Reduce taxable income. Therefore, the donor is favorable.

From the above analysis, the donor enterprise will be a variety of in-kind donations into the first sale of physical gifts of cash is favorable.