(1) Late Tax Payment Due to Insufficient Deposits
After a company files its tax return, it should pay taxes promptly. However, if the deposits are insufficient, it can apply for a late payment. Under what circumstances can a late payment be applied? If the available bank deposits are not enough to cover the current payroll, or if after paying the payroll, there are insufficient funds to pay the taxes due.
Note that available bank deposits do not include funds that the company cannot use, such as reserve funds, deposits for designated national purposes, and various special deposits.
The current payroll is the salary that the company is obligated to pay according to its salary system..
If the above situation occurs, the company should promptly apply for the procedures to defer tax payment.
(2) Filing Tax Returns Without Business Activity
Tax filing is an obligation for companies, regardless of whether they owe taxes. Companies may not have tax liabilities for various reasons, such as being in the preparatory phase; being in a tax-exempt period; being in liquidation; or not having taxable income or profits due to poor business performance. In these cases, companies may not owe taxes, but they must still file tax returns on time; failing to file a return when there are no taxable amounts is known as a zero return. A zero return is a simple procedure. If not completed, penalties will be imposed.
(3) Misuse of Deemed Sales
Deemed sales refer to situations where taxes must be paid as if a sale occurred, even when no actual sale took place. Taxing deemed sales without actual sales undoubtedly increases the tax burden on companies. Not paying taxes on deemed sales is a violation, and treating non-sales as sales will lead to overpayment of taxes.
For example, a hotel manager often hosts guests at their own hotel, signing for entertainment expenses, which can accumulate to over a hundred thousand in a year. When an accounting firm audits, they require this amount to be treated as deemed sales and taxed.
However, tax regulations do not stipulate that dining at one’s own hotel constitutes deemed sales. If the company follows the erroneous claims of the accounting firm, it will end up overpaying taxes.
Do not misuse deemed sales. Tax law stipulates that there are allowable deduction ratios for business entertainment expenses.
If the annual sales (operating) income net is 15 million yuan or less, the allowable deduction cannot exceed 5‰ of the sales (operating) income net; if the annual sales (operating) income net exceeds 15 million yuan, it cannot exceed 3‰ of that portion. If the business entertainment expenses are too high, they cannot be included as deductible expenses before tax, and thus the CPA OFFICE’s audit requirement to include them as sales is reasonable, primarily depending on how much was spent.
(4) Assessing Normal Losses
During production, companies experience various losses; some raw materials are lost, while others become products. In value-added tax, the input tax for normal losses can be deducted, while the input tax for abnormal losses cannot be deducted and must be reversed. Therefore, correctly distinguishing between normal and abnormal losses is crucial for a company’s tax obligations.
For instance, a chemical factory experienced some evaporation of raw materials due to hot weather, resulting in losses during inventory. The tax administrator deemed this a natural disaster and classified it as an abnormal loss. This is also an unjust case. Hot weather does not reach the level of a natural disaster, so how can it be considered an abnormal loss? Those unfamiliar with tax regulations will pay the price.
(5) Special Cases in Various Industries
Tax regulations have general provisions, as well as special provisions for specific situations and industries. If companies are unaware of the special provisions applicable to their industry, they may incur losses.
Not understanding can lead to losses!
(6) Applicable Tax Rates Depend on Input Tax
The second provision of the value-added tax states: the tax rate for book sales is 13%. As long as the company is a general taxpayer, the tax rate for book sales is 13%.
The applicable tax rate is related only to the product and not to the input tax.
(7) No Subsidies, Double Salaries Instead
The characteristic of the welfare system in Chinese enterprises is its human touch; during festivals, there is often a small amount of so-called festival bonuses. According to personal income tax policy, festival bonuses need to be included in the monthly salary for personal income tax. Tax policy states that year-end double salaries can be calculated separately as one month’s salary for personal income tax, which can lower the tax rate and reduce employees’ personal income tax burden. Both are just giving out money; festival bonuses incur more tax, while double salaries incur less tax. Therefore, to reduce tax payments, the practice of giving festival bonuses should be changed to year-end double salaries.
Do not stubbornly believe that double salaries are only for foreign-funded enterprises; if you insist on giving festival bonuses, it will be counterproductive. Tax savings are actually quite simple; just arrange according to tax regulations.
(8) Taxes on Travel
Now, some financial personnel in enterprises feel anxious when they hear about company-organized travel. This is because some tax authorities interpret that travel expenses are subject to personal income tax. Are travel expenses taxable? Tax regulations state that personal income tax must be withheld in two situations:
One is when travel expenses are paid in cash, which should be included in the monthly salary for personal income tax. The other is for marketing personnel rewarded with travel, which requires personal income tax. Other forms do not have regulations requiring personal income tax. Therefore, there is no need to fear travel; if arranged properly, it can be enjoyable.
(9) Not Taking Invoices Leads to Overpayment of Taxes
Implementing “invoice control tax” means that all company expenditures must have legal proof; otherwise, they cannot be deducted before tax. Obtaining legal proof has become an important method for companies to save taxes.
Some people do not take it seriously; they think that not issuing an invoice means a lower cost, while issuing an invoice means a higher cost. However, the result is the same.
Is it the same? Let’s look at an example: purchasing stationery for 1000 yuan without an invoice costs 900 yuan, while with an invoice it costs 1000 yuan, a difference of 100 yuan. Paying an extra 100 yuan results in 330 yuan less in income tax; paying 100 yuan less results in 330 yuan more in income tax. Paying an extra 100 yuan to obtain an invoice actually brings benefits to the company.
Company personnel should understand: not obtaining invoices will lead to overpayment of taxes.
(10) Foreign Enterprises’ Training is Not Restricted
Domestic enterprises can deduct employee education expenses at 1.5% of taxable wages before income tax, while foreign enterprises can deduct employee training expenses based on actual costs without the 1.5% limit. Some may immediately ask: Is there a legal basis for this? There is indeed legal basis. This provision is in the “Notice on the Deduction of Certain Costs and Expenses for Foreign-Invested Enterprises” (Document No. (86) Cai Shui Wai Zi No. 331).
Since the document was issued a long time ago, many financial personnel were still in school at that time and are unfamiliar with these regulations, making them susceptible to the 1.5% limit. If you are young and unfamiliar with old regulations, it is advisable to communicate more with older employees.
(11) How Many Years Constitute Bad Debts
Unrecoverable amounts in business operations become bad debts, which are unavoidable losses for enterprises. How long must an amount remain uncollectible to be considered a bad debt? Two years? Three years?
Two years is correct, and three years is also correct. For foreign enterprises, amounts uncollectible for two years are considered bad debts, while for domestic enterprises, amounts uncollectible for three years are considered bad debts. This is another difference between domestic and foreign enterprises..
(12) Rental Properties Cannot Be Exempt from Tax
Units renting properties must pay property tax based on rental income, with a property tax rate of 12%.
A company purchased an office building, using half for its own use and renting out the other half, and applied for tax exemption, but the tax authority rejected the application: the rental portion cannot be exempt from property tax.
(13) Meals Must Be for Accompanying Guests
China is a paradise for food lovers, and people enjoy communicating through dining, clinking glasses, and resolving matters.
Tax authorities impose restrictions on expenses for entertaining clients, so they often equate dining with entertaining guests. Internally, there are various reasons for company gatherings. At year-end, there are large employee gatherings; during meetings, various departments gather; when new employees join, there is a welcome meal; when employees leave, there is a farewell meal. These have nothing to do with entertaining clients, so meal expenses are not necessarily for client entertainment.
Therefore, various internal company gatherings should be well-documented and categorized under different expense items, rather than simply categorizing all meal expenses as business entertainment expenses, which could affect the company’s tax obligations.
(14) Charitable Acts Have Their Rules
Companies bear a social responsibility, and whenever disasters occur, responsible entrepreneurs enthusiastically engage in charitable activities, donating money and goods, showing a spirit of love.
Charitable acts are also related to taxes. Donations made by companies may involve deemed sales, incurring value-added tax, so when donating, one must consider the subsequent tax burden; donations must also reasonably enter into cost expenses and meet tax conditions, including being made through units and channels recognized by the national tax authority, such as government agencies, civil affairs departments, and charitable organizations. Additionally, a special receipt that complies with tax law is required for donations. If conditions are not met, the donation cannot be included in cost expenses, resulting in a 33% income tax on the donation, making the charitable act too burdensome.
(15) Report Accidents
Unfortunate events can be painful, but they do happen. If a laptop is stolen while on a business trip, it can be distressing. After the initial shock, one must continue working. However, one thing to remember is that this incident is related to taxes. Losing a laptop is considered a property loss, and relevant proof must be obtained to include it in the company’s cost expenses.
After losing the laptop, one must promptly report the incident to the police to obtain relevant proof, which should be submitted to the finance department as evidence. Without proof, the loss cannot be included in costs, meaning that more than just a laptop is lost.
Similar accidents should be handled in the same way to avoid further losses.
(16) More Input Tax, More Deductions
As a general taxpayer, the tax owed is the output tax minus the input tax, so obtaining more input tax can reduce tax payments. These input taxes include various aspects: input tax from purchasing office supplies, input tax from purchasing low-value consumables, input tax from fuel for vehicles, and input tax from purchasing repair parts. Little by little, over time, companies can reduce their tax burden. Repair parts are not fixed assets, so input tax can also be deducted.
It is recommended that companies print their general taxpayer information on the back of management personnel’s business cards and present this information when procuring to request special invoices, which is also a good method for tax savings.
(17) Freight Charges Are Not Transportation Fees
When companies sell products, the freight for purchasing raw materials can be deducted at a rate of 7% for input tax, but according to regulations, other miscellaneous fees cannot be deducted, such as loading and unloading fees, insurance fees, etc. When the transport party issues an invoice, they must separate freight from other miscellaneous fees, and the consignor can only deduct the amount calculated based on freight. Some procurement and marketing personnel are unaware of tax regulations and do not pay attention when the other party issues the invoice, only to find out later that the invoice states “freight and miscellaneous fees,” which cannot be deducted, resulting in a 7% loss.
Therefore, company financial personnel must ensure that management understands: freight and miscellaneous fees are not the same, and reducing errors can lead to lower tax payments.
(18) Clever Gifting and Sending
A 2000 yuan appliance, when given with a 400 yuan small appliance, totals 2400 yuan, but the actual payment is 2000 yuan. If given as a gift, value-added tax must be paid on 2400 yuan. Now let’s revisit the plan: sell both products to the customer, offering a 400 yuan discount, where the 2000 yuan item is sold after a 15% discount, and the 400 yuan item is sold after a 25% discount. Thus, the customer actually pays 2000 yuan, achieving the same effect as buy one get one free, but for the store, since it is a price discount, there is no gifting behavior, and only the actual sales amount of 2000 yuan is subject to value-added tax.
Some marketing personnel may find this approach trivial. However, changing the method to comply with tax law is important; otherwise, the company would have to pay an additional 68 yuan in value-added tax, which is not trivial for the company’s tax obligations.
(19) Signing According to Law Can Save Taxes
A equipment company, after producing equipment, needs to provide installation services for clients in buildings. The financial personnel are aware that this is a one-stop service, where selling products and installation constitutes mixed sales. If the contract specifies the equipment price and installation price separately, different tax rates of 13% and 6% can be applied. However, if the contract only states a total price without separating the amounts, the financial personnel must insist on having the contract re-signed to avoid tax issues. The other party’s financial manager, being astute, proposes a condition: if the contract is re-signed, the company can save nearly 200,000 yuan in taxes, but the contract price must be reduced by 50,000 yuan. The financial personnel, knowing this is taking advantage of the situation, reluctantly agree to a 30,000 yuan discount and re-sign the contract.
If the request had been made in advance, the other party would not have been able to take advantage of the situation.
(20) Tax on Canceled Contracts
Some company leaders enjoy signing contracts and often change their minds; after signing, they may find it unsuitable and cancel it to start over. Signing a contract incurs stamp duty, even if the contract is canceled. For example, if a company signs a contract this month and pays stamp duty during the declaration, and then the leader cancels the contract, the stamp duty has already been paid and cannot be refunded, resulting in overpayment of taxes due to the canceled contract.
Another issue arises with contract amendments; if the contract amount increases, additional stamp duty must be paid, but if the contract amount decreases, the stamp duty is not refunded.
Therefore, if the contract amount is uncertain, it is advisable to first sign a contract with an undetermined amount and supplement it once the amount is confirmed to avoid overpayment of taxes.
(21) Agency or Non-Agency?
Many companies sign tax agency contracts with firms, believing they are agency services. Since it is an agency service, taxes should be paid on the difference. However, tax agency contracts should be taxed as other services in the service industry and should be taxed on the full amount. The tax authority’s recognition of agency is not based on the contract’s name but on its economic substance. Tax agency services are essentially services provided by intermediary institutions directly to enterprises, without a third party involved. Therefore, tax agency contracts do not qualify as agency contracts, and any advances or collections that occur during the execution of the contract must be included in taxable income and taxed on the full amount, not on the difference.
The concept of agency in tax law differs from everyday understanding.
(22) Liability for the Other Party’s Illegal Actions
Signing a contract imposes legal obligations on both parties. A common situation is that one party fulfills the contract, but the invoice provided by the other party has issues, such as some invoices being purchased from third parties, some being issued by other units, some being from uncontrolled invoices, and some being directly fraudulent. If the tax authority discovers issues with the invoices, the purchasing party bears the responsibility. If the other party provides invoices that violate regulations, the purchaser will bear legal responsibility. If one wishes to hold the other party accountable, it can be challenging to find suitable legal grounds. Therefore, it is advisable for companies to include protective clauses in contracts: if the invoices provided by the other party do not comply with tax regulations, the other party shall bear the liability for any losses incurred by the first party. Protective clauses can exert pressure on the other party and provide a basis for compensation if issues arise, eliminating the need to worry about legal grounds.
(23) Consequences of the Other Party’s Tax Evasion
In a real estate company, an advertisement promised: buying a house includes the deed tax. Homeowners buy houses, and the contract states that the deed tax is borne by the real estate company. After moving into their new homes, homeowners are informed that they must pay the deed tax before obtaining property certificates. Homeowners argue with the housing authority, stating that the real estate company promised to cover the deed tax. However, the taxpayer for the deed tax is the homeowner, and the housing authority is not obligated to consider the contract between the real estate company and the homeowners; they must follow legal procedures. The dispute between homeowners and the real estate company must be resolved through legal channels. Homeowners have no choice but to pay the deed tax to obtain their certificates and later seek reimbursement from the real estate company.
If the other party agrees to cover the tax but fails to pay, the legal responsibility falls on the homeowner, while the other party only bears responsibility for breaching the contract, which is a contractual dispute. Therefore, even if a tax-inclusive contract is signed, one must still ensure that the other party actually pays the taxes.
(24) A Day’s Difference, Two Outcomes
For example, Zhang San registered a company on June 30, while Li Si registered a company on July 1. Everyone overlooked this one-day difference, and both submitted applications to the tax authority to enjoy tax incentives for newly established enterprises. In the second half of the year, both companies incurred losses. The tax authority approved Zhang San’s company to enjoy a year of income tax exemption starting that year, meaning he would have to pay income tax starting next year, which has no practical significance since he incurred losses that year. Li Si’s company can choose to pay this year’s profits first and then start enjoying a year of income tax exemption next year, which is also not a problem since he incurred losses that year. Therefore, the company registered in the second half of the year can choose, while the one registered in the first half must pay taxes. This one-day difference leads to different fates, and to succeed in business, one must understand tax regulations.
(25) What Constitutes Development Costs
Tax policy states that companies’ technology development costs that meet certain conditions can be deducted at an increased rate. This policy sounds simple, but issues can arise in its application. In accounting, we classify expenses for technology research and development as management expenses, and then deduct these expenses before tax. In reality, the policy’s technology research and development costs also include depreciation of the research and development site, depreciation of equipment, and salaries and benefits for research personnel. Since we do not separately account for the depreciation of the research and development site and equipment in accounting, this often leads to companies missing out on the largest deduction amounts, resulting in not fully utilizing the policy and missing out on significant deductions..
Utilizing policies effectively is indeed not easy.
(26) The Benefits of Contributing Technology as Capital
Many private enterprise owners are technical experts, each holding patents. They provide patents for company use without signing contracts or having a clear understanding of the usage method. It is recommended that owners contribute their technical patents as capital to the company; this can improve the company’s financial situation and reduce funding pressure during investment. Additionally, after contributing as capital, the company can account for it as intangible assets, allowing for reasonable amortization, increasing cost expenses, reducing profits, and lowering income tax.
This financially and tax-beneficial method is often unknown to many entrepreneurs, leading them to complain about excessive government taxation while simultaneously paying unnecessary taxes.
(27) Restructuring Processes to Reduce Taxes
For motorcycle and automobile companies, establishing their own sales companies can avoid high consumption tax burdens. The company’s products are first sold to the sales company, which then sells to distributors or customers. Since consumption tax is paid at the production stage and not at the sales stage, the sales company does not incur consumption tax, allowing for a reduction in consumption tax as long as the pricing is reasonable. Some may argue that this method constitutes price transfer and that tax authorities will not accept it. However, as a part of the enterprise’s value chain, marketing activities are also a profit-generating link, and a portion of the profit remaining in the sales company is consistent with the actual business. The key is to reasonably allocate profits between the manufacturing and sales stages; typically, profits in the manufacturing stage are low, so allocating 30%-40% of profits to the sales company is a reasonable distribution.
(28) Distributing Before Selling to Reduce Taxes
If a company holds 60% of the shares in a well-performing enterprise, and after several years of profitability, the value of that 60% stake has increased significantly. Now, when considering transferring the shares, the financial manager suggests distributing profits first before the transfer to reduce taxes. The owner may not understand: if profits are distributed first, the selling price will naturally decrease; if not distributed, the price will be higher. Why can distributing first save taxes? The reasoning is simple: distributing profits first means that the distributed profits do not incur additional taxes due to regional differences, so there is no need to pay taxes on the distributed profits. If not distributed, the difference between the transfer price and the original investment price includes the undistributed profits, which would incur taxes. Therefore, distributing profits first is more advantageous.
When transferring shares, companies must analyze whether profits should be distributed first.
(29) Good Intentions Can Lead to Bad Outcomes
A company gives year-end bonuses, and the owner feels that Zhang San’s performance is commendable, awarding him 6000 yuan, while Li Si’s performance is even more outstanding, deserving recognition, so he awards 6200 yuan. After the bonuses are distributed, Li Si approaches the owner, questioning why Zhang San, who performed worse, received a higher bonus. The owner is surprised: clearly, he awarded more, so why does Li Si feel he received less? Upon inquiring with finance, it turns out they inadvertently fell into the personal income tax trap: Zhang San’s bonus incurs 300 yuan in personal income tax, while Li Si’s incurs 595 yuan. As a result, Zhang San takes home 5700 yuan, while Li Si takes home 5605 yuan. The outcome is that the person the owner intended to reward ends up with less.
The owner reflects: even such a small matter can be tripped up by tax traps; it seems that ignorance of tax law can lead to losses.
(30) Reporting False Losses as Tax Evasion?
No one is perfect; mistakes can happen. In financial work, errors in income accounting and cost handling are inevitable. When tax authorities conduct inspections and discover discrepancies affecting the year’s profits, the company must bear tax responsibilities. If the company is initially at a loss, and corrections to income and cost handling result in profitability, it may be deemed as underreporting taxes, which can be treated as “tax evasion”; if corrections still show a loss, it does not constitute tax evasion but merely “falsifying tax bases” and cannot be treated as tax evasion.
(31) Tax Reporting Cannot Stop When Personnel Leave
As the saying goes, “Iron-clad barracks have flowing soldiers.” The same goes for enterprises; personnel changes are normal. Financial personnel may also experience turnover, and if the previous employee leaves before the new one arrives, a gap may occur. Due to the timeliness required in financial work, if the company does not arrange properly when financial personnel leave, it can lead to losses. Other tasks can wait for the new employee to handle, but tax reporting has time constraints and cannot wait for the new person to arrive. It is advisable for companies to pay attention to tax reporting issues when financial personnel leave and to negotiate with departing employees to ensure that tax reporting is completed, even if they have left. Failing to report on time may incur fines of 2000 yuan each time.
(32) No Price, No Extra Charges
Value-added tax includes provisions for extra charges, which are amounts collected in addition to sales or services. These extra charges may not necessarily be the company’s income but still require taxation, thus increasing the company’s tax burden.
The condition for extra charges is that there must be a price: that is, there must be a fact of sales or services for extra charges to arise. If there are no sales or services provided, even if payments are collected, they do not constitute extra charges.
For example, if a company is renovating your office and accidentally breaks a set of glass furniture, the compensation of 10,000 yuan does not constitute extra charges since your company did not provide any service to the renovation company.
(33) Cleverly Responding to Property Tax
Anyone who has collected rent knows that the 12% property tax is quite heavy. I have personally collected rent and, after paying 5% value-added tax and 12% property tax, very little remains, leading to many complaints from owners. Later, I divided the rent into three parts: rent, site rental fees, and equipment rental fees, and re-signed contracts with clients, only paying property tax on the rent, saving over a million in taxes. It reminds me of a saying: the world lacks beauty, only the eyes to discover it.