The Ministry of Finance and the State Taxation Administration issued the Announcement on the Pre-tax Deduction of Advertising and Business Promotion Expenses (the “Announcement”) on November 27, 2020. The Announcement is effective from January 1, 2021 to December 31, 2025.
The Announcement states that advertising and business promotion expenses incurred by enterprises that manufacture or sell cosmetics, or manufacture drugs and beverages (excluding alcohols) may be deducted by up to 30% of their sales (business) revenue for the current year, and the excess may be carried forward for deduction in subsequent tax years.
According to the Announcement, for affiliated enterprises that have entered into an agreement on the apportionment of advertising and business promotion expenses (“apportionment agreements”), the portion of advertising and business promotion expenses incurred by one of the parties that do not exceed the pre-tax deduction percentage of the sales (business) revenue for the year may be deducted from such enterprise, or a part or the entirety of the amount may be reallocated to another party for deduction pursuant to the apportionment agreement. The other party may exclude the advertising and business promotion expenses that are reallocated to it per the above method when calculating the pre-tax deduction limit for advertising and business promotion expenses. It is worth noting that tobacco advertising and business promotion expenses of tobacco enterprises are not deductible in the calculation of taxable income.