Take advantage of tax incentives to update your equipment at a lower cost

Take advantage of tax incentives to update your equipment at a lower cost

Source: China Tax News, 2024-03-22, Edition: 06, Author: Huo Zhiyuan, Wang Ying, Wang Fan

On February 23, the fourth meeting of the Central Financial and Economic Commission studied the issue of large-scale equipment renewal and trade-in of consumer goods. On March 13, the Chinese government website issued the Notice of the State Council on Printing and Distributing the Action Plan for Promoting Large-scale Equipment Renewal and Consumer Goods Trade-in (Guo Fa [2024] No. 7), which clearly promotes a new round of large-scale equipment renewal and consumer goods trade-in important measures. The author suggests that enterprises with equipment renewal needs should seize the opportunity of equipment renewal policies, accurately make good use of preferential tax policies such as one-time deduction of equipment and appliances, accelerated depreciation of fixed assets, etc., so as to save tax-related costs of enterprises, revitalize cash flow, and stimulate the innovation vitality of enterprises.

One-time deduction of expenses reduces the current tax burden of enterprises

As a preferential policy for enterprise income tax, accelerated depreciation of fixed assets has always been an important policy measure for the state to encourage enterprises to increase investment in fixed assets, carry out technological renewal and equipment transformation. Since 2014, the state has successively introduced and gradually improved a series of accelerated depreciation policies for fixed assets, especially the policy of "one-time pre-tax deduction of equipment and appliances with a unit value of no more than 5 million yuan" introduced in 2018.

On August 18, 2023, the Ministry of Finance and the State Administration of Taxation issued the Announcement of the Ministry of Finance and the State Administration of Taxation on the Enterprise Income Tax Policy on the Deduction of Equipment and Appliances (Announcement No. 37 [2023] of the Ministry of Finance and the State Administration of Taxation, hereinafter referred to as Announcement No. 37), extending the policy period to December 31, 2027. That is, if the unit value of the newly purchased equipment and appliances purchased by the enterprise during the period from January 1, 2024 to December 31, 2027 does not exceed 5 million yuan, it is allowed to be included in the current cost and expense at one time and deducted when calculating the taxable income, and depreciation will no longer be calculated on an annual basis.

Allowing enterprises to include the cost of purchasing equipment in the current cost at one time is essentially allowing enterprises to deduct expenses in advance, which is an important benefit for enterprises with a large total cost of equipment and appliances. Enterprises that choose a one-time deduction should be reduced in the current period, and the tax adjustment should be increased in the depreciation period of the following year. That is to say, the accelerated depreciation of fixed assets incurred by the enterprise can be fully deducted from the tax in the current year, so as to reduce the current tax burden to the greatest extent, shorten the equipment capital recovery cycle, and improve the ability of the enterprise to update equipment.

For example, if an enterprise purchases a production equipment with a unit value of 1.2 million yuan in December 2022 and has an accounting depreciation period of 10 years, it chooses to apply a one-time deduction policy of less than 5 million yuan when the enterprise income tax is settled in 2023. In 2023, the accounting depreciation will be 120,000 yuan (120÷10), the tax accelerated depreciation will be 1.2 million yuan, the tax adjustment will be 1.08 million yuan (120-12) in the current year, and the annual increase will be 120,000 yuan in the following years, and fill in the "tax adjustment amount" column in line 11 of the "Asset Depreciation, Amortization and Tax Adjustment Schedule" in the A105080.

Pay attention to the specific implementation caliber such as "unit value".

The one-time pre-tax deduction policy for equipment and appliances below 5 million yuan is applicable to enterprises in the whole industry, and there is no negative list of additional deduction provisions for R&D expenses. In practice, the author finds that some taxpayers do not have an accurate grasp of issues such as the determination of "unit value".

Announcement No. 37 clarifies that only equipment and appliances with a unit value of no more than RMB 5 million can enjoy the one-time deduction policy. The method of determining the unit value is the same as that of fixed assets as stipulated in the regulations for the implementation of the Enterprise Income Tax Law, that is, "for fixed assets purchased in monetary form, the unit value shall be determined by the purchase price, the relevant taxes and fees paid, and other expenses directly attributable to the assets to achieve their intended use; It should be reminded that the "unit value" can be the value of a piece of equipment or appliances, or the value of a set of equipment and appliances (except houses and buildings), but the amount must be less than or equal to 5 million yuan.

In practice, there are many ways for enterprises to obtain fixed assets, including outsourcing, self-construction, financing leasing, and accepting donations. The announcement of the State Administration of Taxation on the implementation of enterprise income tax policies related to the deduction of equipment and appliances (Announcement No. 46 of 2018 of the State Administration of Taxation, hereinafter referred to as Announcement No. 46) stipulates that the acquisition method of fixed assets that can enjoy the policy is "purchase", that is, purchase in monetary form or self-construction. Among them, the purchase is purchase, and the materials used in self-construction are also purchased, so self-built fixed assets are also allowed to be deducted at one time. In particular, it should be noted that although the general ownership of fixed assets under financial lease will ultimately vest in the lessee, it does not fall within the scope of "purchase" in the regulations.

Article 4 of Announcement No. 46 stipulates that enterprises may choose to enjoy a one-time pre-tax deduction policy according to their own production and operation accounting needs. If you do not choose to enjoy the one-time pre-tax deduction policy, you cannot change it in subsequent years. It should be noted that the provision that it shall not be changed in subsequent years is for a single fixed asset. For example, the company purchased and put into use two pieces of equipment in the current year, with a unit value of 3 million yuan and 2 million yuan respectively. For equipment with a unit value of 3 million yuan, the enterprise chooses not to enjoy the one-time deduction policy in the year of use, and cannot change the pre-tax deduction policy for the equipment in the second year. For equipment with a unit value of 2 million yuan, a one-time deduction policy can be enjoyed in the year of use. In other words, for two completely independent pieces of equipment, the way of pre-tax deduction of costs and expenses can be different.

Choose carefully whether to enjoy the one-time deduction offer

For enterprises, enjoying the one-time deduction policy for equipment and appliances, the amount of pre-tax deduction and depreciation in the early stage is more, and the tax payment is relatively small, which can achieve deferred tax payment, but the total tax payment remains unchanged. The specific situation of each enterprise is different, and the impact of the one-time deduction policy for equipment and appliances is also different. When choosing the applicable policy, enterprises should comprehensively consider their actual business conditions and accounting conditions, and specifically analyze the actual impact of tax incentives on the basis of compliance enjoyment.

First of all, enterprises should comprehensively consider their own tax burden. Enjoying the one-time deduction policy for equipment and appliances has an obvious effect on enterprises with better profits in the current period, but for enterprises with continuous losses and short-term difficulty in achieving profits, choosing a one-time pre-tax deduction will further increase losses. Within the compensation period stipulated by the tax law (generally 5 years, 8 or 10 years for special provisions), it may not be fully compensated in the future. For example, if an enterprise is in the tax exemption period of "three exemptions and three halves", if the equipment and appliances expenses are deducted at one time during the tax exemption period, although the cost is deducted more, the tax exemption policy has failed to play a role in reducing the burden, and after the tax exemption period is over, the accounting depreciation amount of the enterprise will be increased, which will increase the tax burden in the overall life cycle of the enterprise.

Second, companies need to consider their own accounting capabilities. After the one-time deduction of equipment and appliances is applied, the enterprise needs to make tax adjustments every year according to the difference between the pre-tax deduction depreciation amount and the financial accounting depreciation expense. For enterprises with complex types of assets, a large number of assets, and a long accounting period, it is necessary to set up ledgers by category, register the differences between tax treatment and accounting treatment of assets, and consider the provision and reversal of asset impairment losses.

In addition, companies need to consider other income tax incentives in a coordinated manner. If an enterprise purchases appliances and equipment specifically for R&D, the depreciation expenses incurred can enjoy additional deduction for R&D expenses. The special equipment for environmental protection, energy and water saving, and safe production purchased and used by the enterprise can be deducted from the tax payable in the current year according to 10% of the investment amount of the special equipment. The author suggests that relevant enterprises should enjoy relevant tax incentives in accordance with the preferential policies and conditions.

(Author's Affiliation: Hebei Provincial Taxation Bureau, State Administration of Taxation, Qinhuangdao Taxation Bureau, State Administration of Taxation)