Considerations on the Issue that the Operating Period of Foreign - related Enterprises is Less Than the Statutory Minimum Depreciable Life of Fixed Assets

Postdate: 2016-11-08

Fixed assets are long-term use and maintain their original physical form of labor information and other material information, is used in the business life of a longer operating assets. In the course of use, the original value of fixed assets will be tangible and intangible loss of its occurrence and the transfer to the cost of goods or goods in circulation, and sales from the product or goods to be compensated, and transfer this part Value is called depreciation of fixed assets.

In the calculation of depreciation, a very important factor is the useful life of both fixed assets related to the original value of the number of sub-period is completed, also determines the amount of depreciation should be withdrawn for each period, and will produce a certain tax Impact. And thus in the "Foreign Investment Enterprises and Foreign Enterprises Income Tax Law" in the depreciation of fixed assets for the shortest period of time made it clear that:


Buildings for 20 years

Trains, ships, machinery, machinery and other production equipment for 10 years

Means of transport (except electronic equipment, trains, ships) and

Tools, furniture, etc., relating to the production and operation of the business


In the "Accounting System for Foreign-funded Enterprises of the People's Republic of China", it is regulated that the enterprise shall depreciate on a monthly basis according to the stipulated depreciation method and depreciation period, etc., and the depreciation period shall be the same as that of the fixed assets. , According to the use of fixed assets, respectively, to make the following account processing:

By: manufacturing costs (or sales costs, management fees)

Credit: Accumulated Depreciation


If depreciation is made on the fixed assets used in the construction period, then:

By: construction in progress (or start-up costs)

Credit: Accumulated Depreciation


For special reasons to shorten the period of depreciation, must be reported to the tax authorities for approval. The tax law allows to shorten the statutory depreciation life of the situation include: (a) by acid, alkali and other strong corrosion of machinery and equipment and perennial in a state of shock and vibration of the plant and buildings; (b) due to increased utilization, strengthen the use of strength, (3) The term of cooperation of a Chinese-foreign contractual joint venture is shorter than the statutory minimum period of depreciation and the fixed asset is owned by the Chinese party after the expiry of the term of the cooperative venture. This is an objective factor to accelerate the depreciation of fixed assets. However, the Ministry of Finance recently issued "the People's Republic of the financial management of foreign-invested enterprises," Article 19, paragraph 4, further defined that the production and operation period shorter than the statutory depreciation period, after approval, according to the production and operation period Determine the depreciation life of fixed assets. This is the man-made policy to accelerate the depreciation of the factors.

Around the production and operation period and the depreciation of fixed assets, this problem, combined with the actual operation of the current situation, this deal will be detrimental to the management of fixed assets, but also will produce and there are some unfair and unreasonable phenomenon . In summary, there are some problems:

First, the calculation of fixed assets depreciation period shorter than the statutory minimum period of business to determine the period, is bound to increase the cost per product or commodity circulation fee amount, so that the taxable income, tax profits. This not only reduces the national tax revenue, but also artificially enlarges the preferential treatment to the foreign-funded enterprises, makes the domestic-funded enterprises, especially the state-owned enterprises, unfair and more unfavorable competitive position, and deepens the contradiction of the unfairness of the enterprise's survival and development environment.

In view of this, we believe that the determination of the operating period of foreign-invested enterprises should be based on national industrial policy requirements, supplemented by accelerated depreciation methods. So that China's foreign investment policy from attracting foreign capital to increase foreign exchange, the use of foreign investment, a reasonable adjustment of China's industrial structure and export product mix, giving priority to the development and support of key industries, so as to promote the revitalization of the national economy and take-off. In this way, the preferential policies given to the industry or industry, rather than enterprises, is conducive to different enterprises in the nature of fair competition, preferential policies have a greater positive effect.

Second, the use of fixed assets refers to the useful life of its economic life, rather than technical life. In other words, the original value of fixed assets has been transferred after the completion of its use value may still exist. When the normal operation of the enterprise to terminate the liquidation period, the depreciation of fixed assets has been in full, the book records only part of the residual value reserved. But the fixed assets also have the use value, through leasing or other means of reinvestment, but also income, there will be depreciation of the situation.

Third, the real loss of fixed assets is not accelerated by the shortening of depreciation time. The value of the fixed assets is transferred through the depreciation method within the specified normal operating period, and the value of the fixed assets is transferred to the product cost or the commodity circulation expense through an accelerated depreciation method with special preferential policies to obtain compensation in the sales or circulation of the products. However, the normal depreciation of the calculation period, the real loss is not accelerated by the depreciation of the shortening of time, only from the concept of accelerated depreciation Bale. After the expiry of normal operation, this part of the value of depreciation in the accelerated depreciation of normal after the shortest depreciation period, the depreciation of the fixed assets for processing, in the fixed assets auction, transfer, sale, Leasing and other forms of recycling, this part of the value of accelerated depreciation and thus make it in the same period of different enterprises in the operation of the role played by different, resulting in unfair and not comparable.

Fourth, the transfer of business investment risk. As a result of the accelerated depreciation of the above-mentioned treatment, the enterprise can compensate for the investment in the fixed assets from the operating cost within the operating period, and at the same time can reclaim the investment value by auction, transfer sale, etc., effect. However, in the second case, the firm can fully consider and deal with its risk to the value of the fixed asset investment and does not need to be compensated for in accelerated depreciation. And through the first way from the operating costs of compensation, is virtually the risk of fixed assets investment in the enterprise transferred to the state by the state tax to bear, this is a very unreasonable 

In view of the above-mentioned situation, the fixed assets whose term of operation is shorter than the statutory minimum depreciation period shall be assessed at the time of termination, and the unit that accepts lease, resale or reinvestment shall have the fixed assets as the price. Based on the fixed assets used in the asset assessment report clearly stated in the original value, accumulated depreciation and the value of the assessment, but also as a basis for calculating depreciation. In this way, can learn from the foreign-invested enterprise accounting system for the operating period is longer than or equal to the statutory minimum depreciation period of the provisions of practice: fixed assets depreciation can continue to use, no depreciation; advance scrap of fixed assets, Depreciation, but only for the transfer price (generally should not be higher than the price after the assessment) part of the depreciation. Another feasible approach is that when the business period is shorter than the statutory minimum depreciation period of the enterprise, has been depreciated but can still use the fixed assets of the lease, resale, reinvestment and other forms of gain part of the tax department The value added part of the value (that is, more than the original fixed assets minus the normal minimum depreciation period of the net part of the depreciation), and for the purchase of the fixed assets of enterprises, certified public accountants and related professionals The estimated useful life of the fixed assets can be estimated and depreciation can be made. The characteristics of this approach is to pay attention to the complete certificate, and according to the provisions of the depreciation and pay taxes.

The above two kinds of treatment, the actual operation has a certain degree of difficulty, must be tax, industry and commerce and accounting firms and other departments in close cooperation and strengthen management. In particular, the accounting firm, in the capital verification or financial review, the part of the increase in fixed assets to be strictly reviewed to determine the price and depreciation of the correctness of calculation, and improve the relevant legal procedures.

To sum up, we believe that the operating period is shorter than the statutory minimum fixed-asset depreciation period, the fixed assets should be depreciated in accordance with the provisions of the minimum depreciation period depreciation, and because of the two different terms arising from the conceptual loss, (Such as auction, transfer sales, etc.) to be recovered compensation, not only a reasonable reflection of investors should bear the investment risk, reflecting the policy of fairness, without prejudice to national interests. (From the "foreign tax" in 1993 twelfth)