(Source: https://pltfrm.com.cn)
In the Chinese tax system, the treatment of losses carried forward by foreign companies is quite similar to that for domestic companies. Here are the key aspects of how these losses can be managed:
- Carry-Forward Period:
- As of my last update, tax losses can be carried forward for up to five years. This period applies to both foreign and domestic companies. It’s important to note that the carry-forward period is subject to change based on tax law revisions, so it’s advisable to check for the latest regulations.
- No Carry-Backward:
- China does not typically allow the carry-backward of losses, meaning losses cannot be applied to profits in previous years to obtain a tax refund.
- Scope of Application:
- The losses carried forward can only be used to offset taxable profits in future years. This means if a company incurs losses in one fiscal year, it can deduct these losses from its taxable income in subsequent years, within the five-year period.
- Limitations and Conditions:
- Certain conditions and limitations may apply to the utilization of carried-forward losses. These could include restrictions based on the type of income or the nature of the business activities.
- Restrictions on Change of Ownership:
- There may be restrictions on the carry-forward of losses in cases of significant changes in ownership or business scope. This is to prevent the trading of tax losses or the acquisition of companies primarily for their tax loss carry-forwards.
- Documentation and Compliance:
- Companies must maintain proper documentation and records of their losses and ensure compliance with the relevant tax filing and reporting requirements.
- It is important to accurately calculate and report these losses in annual tax filings.
- Sector-Specific Rules:
- In some cases, specific industries may have different rules regarding the treatment of tax losses due to their unique nature or policy considerations.
- Impact of Transfer Pricing Adjustments:
- Transfer pricing adjustments made by the tax authorities can affect the amount of taxable profit or loss and, consequently, the amount of loss available to carry forward.
- Use of Losses in Corporate Restructurings:
- In cases of mergers, acquisitions, or corporate restructurings, the treatment of existing tax losses can be complex and may require careful planning and consultation with tax professionals.
Foreign companies operating in China should carefully manage their tax positions in relation to losses and ensure compliance with the relevant regulations. Given the complexities of the tax system and potential changes in regulations, it is advisable to seek professional tax advice, particularly for strategic tax planning and compliance.
PLTFRM is an international brand consulting agency that works with companies such as Red, Tiktok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries exports in China account for 97% of the total exports in Asia. Contact us and we will help you find the best China e-commerce platform for you. Search pltfrm for a free consultation!
