Tax Planning For Interest On Borrowing Costs

According to the current enterprise income tax policy, the actual expenses related to the company's income, including costs, expenses, taxes, losses and other expenses, are allowed to be deducted when calculating the taxable income.

The reasonable and non capitalized borrowing cost that the enterprise has in the production and operation activities will be deducted.

If a company borrows money for the purchase, construction of fixed assets, intangible assets and inventory that has been built for a period of more than 12 months to reach a predetermined sale state, the reasonable borrowing cost arising from the purchase and construction of the relevant assets shall be included as capital expenditure into the cost of the relevant assets and shall be deducted in accordance with the regulations on the implementation of the enterprise income tax law of the People's Republic of China.

The following interest expenses arising from the production and operation of an enterprise are deducted:

1, interest payments from non-financial enterprises to financial enterprises, interest on savings deposits and interest payments from interbank loans, and interest payments issued by enterprises.

2.

Borrowing from non-financial enterprises

It shall not exceed the amount calculated according to the same loan interest rate of the same period of financial enterprises.

Therefore, general

In other words, interest on mobile loans can be deducted directly, but there is a certain upper limit, and the excess can not be deducted.

Specialized loans, that is, interest on fixed assets, can not be deducted directly, and can only be depreciated together with fixed assets, but there is no deductible limit.

Taxpayers can make full use of this provision for tax planning, and convert the interest of general operating loans that can not be deducted into fixed assets interest.

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Financing decision is a problem that any enterprise needs to face. It is also one of the key problems for the survival and development of enterprises.

Corporate financing is mainly to meet the needs of investment and capital utilization. According to the different sources of capital, the fund-raising activities can be divided into equity financing and debt financing, thus forming different capital structure of enterprises, resulting in different capital costs and financial risks.

The application of tax planning in raising funds is to rationally arrange the proportion of equity capital and debt capital and form the optimal capital structure.

In the process of financing, enterprises should consider the following aspects:

1, the impact of financing activities on the capital structure of enterprises.

2, the impact of changes in capital structure on tax costs and corporate profits.

3, the choice of financing mode has an impact on optimizing the capital structure and reducing tax burden on the maximum profits of enterprises and owners after tax.

An enterprise can raise its own funds by means of direct investment, stock issuance and retained earnings. Although the risk is small, dividends paid and dividends paid in the post tax profits can not play a role in reducing the income tax, and the cost of enterprise funds is high.

If debt is raised through raising funds to banks or other financial institutions or issuing bonds, the interest paid can be included in the cost before tax, thereby reducing the pre tax profits of enterprises and enabling enterprises to get tax saving benefits.

However, the higher debt ratio will affect the future financing cost and financial risk, so the higher the debt ratio is, the better.

The leverage of long-term debt financing is reflected in improving the return on equity capital and earnings per share of common stock, which can be reflected from the following formula:

Equity capital yield (pre tax) = pre tax investment yield + debt / equity capital (pre tax investment yield - debt cost ratio). Therefore, as long as the pre tax investment yield of enterprises is higher than the debt cost rate, increasing the debt limit and raising the proportion of liabilities will bring the effect of the increase in the rate of return on equity capital.

However, the effect of the increase of the equity capital yield will be offset by the gradual increase of the financial risk and the risk cost of the financing. When the two reaches a general balance, it will reach the maximum limit of increasing the debt ratio. Beyond this limit, the financial risk and the cost of financing risk will exceed the increase of the equity capital yield, and it will also reduce the profit after tax and reduce the return on equity capital.