SMEs' New Equipment Deductions

The Ministry of Finance and the State Administration of Taxation jointly issued Announcement [2022] no. 12 about the Relevant Policies for Pre-tax Deduction of Equipment and Appliances for Small and Medium-sized Enterprises.


Announcement no. 12 aims to promote the equipment renewal and the technological upgrading of micro, small, and medium enterprises, providing that newly purchased equipment and appliances (i.e., fixed assets other than housing and buildings) by small and medium enterprises from 1 January 2022 to 31 December 2022 with a unit value of more than 5 million RMB, can be deducted when computing CIT according to a certain percentage of the unit value based on the minimum depreciation period stipulated in the Implementing Rules of the Company Income Tax:

  1. For equipment and appliances with a minimum depreciation period of 3 years, the amount that can be deducted for CIT purposes is 100% of the unit value;

  2. For equipment and appliances with a minimum depreciation period of 4, 5, and 10 years, the amount that can be deducted for CIT purposes is 50% of the unit value. The remaining value can be deducted according to the remaining depreciation years.

According to the Implementing Rules of the Company Income Tax, the minimum depreciation period provided for fixed assets other than housing and buildings is:

  • Ten years for aircraft, trains, vessels, machinery, mechanical apparatuses and other equipment used in manufacturing;

  • Five years for appliances, tools, furnishings used in connection with manufacturing and business operations;

  • Four years for vehicles other than airplanes, trains, and ships; and

  • Three years for electronic equipment

If the enterprise chooses to apply the policy mentioned above, the loss resulting from the deduction in the year can be carried forward for the next five years.


For the Announcement purpose, the category of micro, small, and medium-sized enterprises include taxpayers operating in non-restricted industries with a number of employees not exceeding 1,000 persons and operating revenue not exceeding RMB 400 million. For the IT, construction, leasing and business service industries, the threshold is 2,000 employees, operating revenue not exceeding RMB 1 billion or total assets not exceeding RMB 1.2 billion, while for real estate enterprises, the threshold consists of operating revenue not exceeding RMB 2 billion, or total assets not exceeding RMB 100 million.


The number of the employees shall be determined based on the number of persons with a labour relationship with the taxpayers, including dispatched staff.


The indicators related to the number of employees and total assets shall be determined according to the quarterly average value of the enterprise of the year. In the specific, the calculation is:

  1. To calculate the quarterly average as an average between the opening value and the closing value in the quarter; and

  2. To calculate the quarterly average of the year as the sum of the quarterly averages divided by 4.

In addition, eligible taxpayers can enjoy the above policy already during the year when making quarterly CIT prepayments.


The other policy implemented by Announcement [2018] no. 54 of the Ministry of Finance and State Administration of Taxation on “Relevant CIT Policies For Equipment and Appliances Deduction” and extended by Announcement [2021] no. 6 of the Ministry of Finance and the State Administration of Taxation on “Extending the Implementation Period of Certain Preferential Tax Policies” and related to the one-time CIT deduction for the newly acquired equipment and appliances (i.e., fixed assets not including housing and buildings) with a unit value not exceeding RMB 5 million is applicable until 31 December 2023.


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