Laws of the People's Republic of China

State Administration of Taxation

Reply of the State Administration of Taxation for Deal with the Issues concerning the Incomes Tax from the Demolishment of Business Use Houses by Foreign-funded Enterprises

Guo Shui Han [2006] No. 154

February 15, 2006

Your bureau on Request for Instructions about Whether the Building Decoration Expenses for Some Houses That Has Been Demolished shall Be Deducted before the Enterprise Income Tax Is Levied for Qingdao Shangri-la Hotel Co. Ltd. (Qing Guo Shui Fa [2005] No. 195) has been received. After deliberation, a following reply is hereby given on how to deal with the issue about the incomes tax from the demolishment of business use houses by foreign-funded enterprises :

In accordance with the relevant provisions in Article 31 of the Detailed Rules for the Implementation of the Law of the People's Republic of China on the Income Tax of Foreign-funded Enterprises and Foreign Enterprise and relevant provisions in Article 1 of the Reply of the State Administration of Taxation on How to Deal with the Taxation Issue about the Building Decoration Expenses of Foreign- funded Enterprises (Guo Shui Han [2000] No.704), the building decoration expenses incurred for the first time that occur before the houses are put into the business use of foreign-funded enterprises, shall be included in the original prices of fixed assets and be calculated for depreciation according to the provisions in the tax law. After the houses for business use have been used for several years, the foreign-funded enterprises carry out anew decorations, for the decoration facilities during the initial decoration that are dismantled during the course of anew decorations shall not be taken as the losses of fixed assets and be deducted from the original value of fixed assets. The incomes from the conversion of the initial decoration facilities dismantled during the course of anew decorations may be used to deduct the expenses for anew decorations.