How To Deal With The Pre Tax Deduction Of Business Entertainment Expenses?

The new enterprise income tax law stipulates that the actual expenses related to the acquisition of income, including costs, expenses, taxes, losses and other expenses, shall be deducted when calculating the taxable income.

That is, the business entertainment tariff shall satisfy the three criteria of "actual occurrence", "income related" and "reasonable".

Therefore, the author thinks that the pre tax deduction of business entertainment expenses should be grasped from the following aspects:

The new tax law adopts a two way restriction on the pre tax deduction of entertainment expenses, that is, the amount of business entertainment expenses is only allowed to tax 60%, while the maximum amount should not exceed 5 per year of sales (business) income.

Then, how can we make full payment within the limit and minimize tax adjustment matters? I think we should find out the best proportion relationship between the two.

If the sales (business) income earned by the enterprise is set to X in the current period and the business entertainment fee of the current period is set to y, when there is 60%y=5 per thousand x, there will be a relationship of y=8.3 per thousand X.

That is to say, when the business entertainment fee reaches 8.3 per cent of sales revenue, the maximum amount of pre tax deduction for business entertainment expenses is reached.

Business entertainment expenses can be deducted before tax. There must be sufficient and effective bills and information to prove the authenticity and rationality of this expenditure.

The so-called rationality refers to the business entertainment expenses paid by enterprises, which must be directly related to production and business activities, and is normal and necessary.

Moreover, the business entertainment expenses of the enterprises in the current period should be in line with the turnover volume of the current period, otherwise there will be a potential tax risk.

The notice of tax treatment in the implementation of enterprise income tax (National Tax Letter No. 2009 [202]) clearly states that when calculating the deduction limit for business entertainment expenses, advertising fees and business publicity fees, the sales (business) income amount shall include the amount of sales (business) income as stipulated in the regulations.

The notice on the disposition of assets income tax of enterprises (National Tax Letter No. 2008] No. 828) stipulates that

The pfer of assets (homemade or outsourced) to marketing or sales, social intercourse, employee rewards or benefits, donations to the outside world, and other purposes of changing the ownership of assets shall be deemed to be the same as sales.

The above-mentioned sales behavior should be adjusted to the current sales revenue in a timely manner so as to expand the net sales volume of the current sales (business), thereby improving the proportion of business entertainment expenses deduction.

In actual operation, the business entertainment expenses of enterprises and

Travel expenses, advertising and business publicity fees are often difficult to distinguish.

For example, when a unit convenes a meeting, it often takes a unified meal in the hotels or guesthouses that are rented, and this part of the food and beverage expenses are often included in the conference fees.

For example, the purchase of gifts to customers should be used as a business entertainment fee, but if the gift is produced by taxpayers or commissioned, it will mark the image and product of the enterprise.

It can also be used for advertising and business expenses.

To this end, taxpayers are required to grasp the tax policy accurately, not to overstep the policy requirements, and to deal with business entertainment expenses, otherwise they will bring unnecessary tax risks.

According to the new enterprise income tax law, the expenses incurred for business entertainment related to production and operation of enterprises shall be deducted from 60% of the total amount incurred, but the maximum shall not exceed 5 per cent of the sales (business) income of that year.

However, the new law does not specify the specific contents of business entertainment.

Generally speaking, business entertainment expenses include two parts, one is the daily business entertainment expenses, such as catering, accommodation, pportation and so on.

The two is the business entertainment expenses of important customers, that is, besides the aforementioned expenses, there are also gift fees, normal entertainment activities, and the cost of arranging customer tours.