Do you need to pay enterprise income tax on the interest accrued from non taxable income
Our company is a non-profit organization and has obtained a tax-free income. Do you need to pay corporate income tax on the interest accrued from this income?
Answer: The Circular of the Ministry of Finance and the State Administration of Taxation on Tax Exempt Income of Non profit Organizations (CS [2009] No. 122) clearly states that:
In accordance with the provisions of Article 26 of the Enterprise Income Tax Law of the People's Republic of China and Article 85 of the Regulations for the Implementation of the Enterprise Income Tax Law of the People's Republic of China (Order No. 512 of the State Council), the scope of the enterprise income tax exempt income of qualified non-profit organizations is hereby defined as follows:
1、 The following income of a non-profit organization is tax exempt:
(1) Income from receiving donations from other units or individuals;
(2) Other government subsidy income except for the financial allocation specified in Article 7 of the Enterprise Income Tax Law of the People's Republic of China, but excluding the income obtained from the purchase of services by the government;
(3) Membership fees collected in accordance with the provisions of the civil affairs and finance departments at or above the provincial level;
(4) Bank deposit interest income derived from non taxable income and tax exempt income;
(5) Other incomes specified by the Ministry of Finance and the State Administration of Taxation.
Therefore, the interest income derived from the tax-free income obtained by your company enjoys the exemption policy of enterprise income tax.
Accounting treatment of corporate income tax deduction
If the enterprise has obtained the tax relief approval from its competent tax authority, make the following entries:
During accrual:
Debit: income tax expense
Credit: tax payable - income tax payable
At the same time:
Debit: tax payable - income tax payable
Credit: non operating income tax relief income