China extends preferential tax treatment for educational expense

China’s State Administration of Taxation released a circular on the pre-tax deduction policy for employee educational funds of enterprises (Cai Shui [2018] No.51 – Circular 51) that took effect on 1 January 2018.

Circular 51 introduced new preferential tax treatment in line with the Chinese government’s efforts to support innovation and development of SMEs.

It states that expenditures of employees’ educational funds incurred by an enterprise are tax deductible, subject to a maximum amount of 8% of the total remuneration paid to the staff during the year of assessment. The portion of expenditure on employee education in excess of the aforementioned 8% can be carried forward to succeeding years of assessment.

Circular 51 allows other types of companies to enjoy preferential tax treatment in this area that only high-tech companies were eligible for in the past. It also encourages all enterprises to invest in staff education, with the aim of achieving a win-win situation for employers and employees.

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