Charity Law tax clause to increase tax exemption quota on donations

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A revised amendment of the “Law of the PRC on Enterprise Income Tax” is set to change the rules for organizations’ charitable giving and the related tax deductions. China’s Minister of Finance, Xiao Jie, has explained that current laws regulate that only when enterprises make charitable contributions that fall within 12% of their annual net-profits are they allowed to be counted as deductions to taxable income.

According to those familiar with the Charity Law, before the law was passed charitable expenditures exceeding 12% of an enterprise’s annual net-profit were not counted as deductible from that year’s taxable income. In addition, before the Charity Law there was no such thing as carryover deductions.

The implementation of the Charity Law stipulates that ordinary taxpayers, corporations, and other organizations that donate to charitable activities are allowed to enjoy tax rebates. In addition, charitable donations from enterprises exceeding the legal limit in regards to net-profit can be carried over into the next three years as deductions.

This revision is good news for enterprises that in the past would make one-time donations exceeding 12% of their yearly net-profits but were then unable to carry them over, and therefore missed out on the tax incentives. The Charity Law has now been revised to be more favourable to those making large one-time donations.