Interest on the loan becomes tax planning other expenses

"Enterprise Income Tax Law" Article 8 states:    "If the corporate has obtained actual income, the reasonable expenses, including costs, expenses, taxes, losses and other expenses are allowed in computing taxable income amount."

An enterprise, during the course of production and business activities, it will occur the following expenses that are deductible :-

  1. Non-financial enterprises has interest payment on borrowings from financial companies, financial firms and interbank deposits, for these interest expense, if approved, as corporate bond issuance expense.
  2. For non-financial corporate loans to non-financial corporate where interest were charged as expense, no more than in the same period, in accordance with similar financial enterprises, the lending rates part as the amount.
  3. Companies to shareholders or other affiliated companies have interest payment on borrowings, natural persons should be based on "Enterprise Income Tax Law" Article 46 and "Ministry of Finance, State Administration of Taxation on Corporate Standards Related Party Interest Expense Tax Deduction on Tax Administration Policy issues notice" ( Cai Shui [ 2008 ] No. 121 ), the conditions prescribed the calculation of corporate income tax for deduction.
  4. Other than those specified above, enterprises’ interest payment on those loans to internal staff or other personnel, where the borrower meets the following conditions and its interest expenses in the same period, of which no more than similar enterprises, it shall be in accordance with the financial lending rate portion, the amount calculated in accordance with "Enterprise Income Tax Law" Article 8 and the "Enterprise Income Tax Law Ordinance," Article 27 , deducts :-

            (A)  Corporate lending between individuals ifor real, legitimate and effective, and it does not have the purpose or other violation of illegal fund-raising laws and regulations of the act;

           (B)  the loan contract is signed between enterprises and individuals.

When the companies are allowed to deduct the interest paid that exceeds the amount, the enterprise can convert it into other excess interest expenses that can be deducted, for example through wages, bonuses, transfer of profits or remuneration for personal services to be paid by way of interest, thereby reducing the tax burden.   Employees, in their own units, in the case of borrowed funds, the companies can convert a portion of interest on the wages to be paid to employees by spending to achieve when calculating taxable income that amounts to be deductable for all purposes.   When conducting corporate income tax planning, it should not forget to involve in withholding personal income tax portion of the plan.