How are entertainment expenses treated for tax purposes?
Entertainment expenses incurred in relation to the production and business operation of an FIE have to be backed up by reliable records or vouchers, and are deductible within the following limits:
- For FIEs engaging in production and retailing, where the annual net sales are 15 million renminbi or less, the entertainment expenses allowed as a deduction shall not exceed 0.5% of the net sales, and for the portion above 15 million renminbi, the entertainment expenses allowed as deduction shall not exceed 0.3% of such portion.
- For FIEs engaging in service businesses, where the annual business income is 5 million renminbi or less, the entertainment expenses allowed, as a deduction shall not exceed 1% of the total business income, and for the portion above 5 million renminbi, the entertainment expenses allowed, as deduction shall not exceed 0.5% of such portion.
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