Notice of Implementation of Verification Collection Method 

Dear Clients,

In accordance with the Measures for Verification Collection of Enterprise Income Tax (for Trial Implementation) issued by the State Administration of Taxation, an enterprise would be charged to Enterprise Income Tax on the basis of Deemed Collection Method if it:-
(1)   reports an unreasonably low amount of taxable income and the enterprise is unable to  provide a reasonable argument in support the amount of taxable income reported
(2)   does not maintain proper books of accounts
(3)   reports zero income for several years
(4)   reports a loss for two consecutive years

In addition to being assessed and charged on the basis of Deemed Collection Method, an enterprise would also be classified as abnormal taxpayer and subject to special monitoring if that enterprise reports no operation continuously for a period of several years.

Deemed Collection Method is further categorized into Deemed Taxable Income Rate and Deemed Income Tax Payable. In any case that the revenue or cost could not be ascertained accurately or that the amount of assessable income could be inferred by other reasonable approaches, an enterprise should be assessed and charged on basis of Deemed Income Tax Rate. Otherwise, an enterprise should be assessed and charged on the basis of Deemed Income Tax Payable (estimated assessment).

The income tax payable of an enterprise which is to be charged using Deemed Income Tax Rate is to be calculated as follows:

Enterprise Income Tax Payable = Taxable Income x Deemed Taxable Income Rate x Enterprise Income Tax Rate 25%

Or, = Costs (expenditures) / (1 ?Deemed Taxable Income Rate) x Deemed Taxable Income Rate x Enterprise Income Tax Rate 25%

Deemed Taxable Income Rates: 

It should be note that an enterprise which is charged based on the Deemed Collection Method is still required to process Annual Enterprise Income Tax Settlement. At the time of processing the Annual Enterprise Income Tax Settlement, it is required to calculate and compare its income tax liability based on the financial statements prepared to that derived with the amount of tax liability assessed based on the Deemed Collection Method and pay whichever is higher.

However, when the amount of tax payable calculated based on its books of accounts is 20% less than that of the Deemed Collection Method, it could request that the Deemed Collection Method be adjusted or apply to be assessed based on the books of accounts.

In this regard, we urge that the books of accounts should be updated and maintained properly so as to enable both the Company and the Tax Authority to ascertain the amount of tax payable and that tax filing be processed in a timely manner.

Kaizen Certified Public Accountants Limited
启源会计师事务所有限公司

Click the link below to review the full text of the Measures:

Measures for Verification Collection of Enterprise Income Tax (for Trial Implementation)
企业所得税核定征收方式的提示