The Ministry of Finance and the State Administration of Taxation have released the Circular on Policies concerning the Pre-tax Deductions of Loan Loss Reserves of Financial Enterprises from Their Corporate Income Tax (the "Circular"), which shall be in force between January 1, 2014 and December 31, 2018.
The Circular clarifies that the loan assets whose loan loss reserves are permitted to be withdrawn before tax include: loans (including mortgage loans, pledge loans, secured loans, etc.); overdrafts through bank cards, discounts, credit advances (including bank acceptance bill advances, letter of credit advances, guarantee advances, etc.), import and export bill advances, inter-bank borrowings, finance leasing receivables, and other risk assets with the characteristics of a loan; and foreign loans which are transferred from financial enterprises and whose repayment responsibilities shall be assumed by the financial enterprises. According to the Circular, financial enterprises enjoying the policies concerning the pre-tax deduction of loan loss reserves for agriculture-related loans and small and medium-sized enterprise-related loans of financial enterprises shall not be entitled to benefit from the policies concerning the general loan loss reserves of financial enterprises as provided under the Circular at the same time.