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7. LOSSES

Losses in China are defined as the negative amount that is arrived at after deducting non-taxable income, tax-exempt income, and other deductions from the total income of each tax year.

When calculating income for CIT on a consolidated basis, losses incurred by overseas business establishments may not be offset against profits from the business establishment within China.

Losses incurred by an enterprise in China may be carried forward and used to offset income in subsequent years. The loss carry-forward period cannot exceed five years. Losses cannot be carried back.

Effective 1 January 2018, losses incurred by qualified High and New Technology Enterprises (see Sec 10.4.) and technology Small and Medium Enterprises may be carried forward for ten years. It is clarified that qualified enterprises in 2018 may carry forward their unrealized losses for 2013 to 2017 for the extended 10-year period, regardless of whether they were qualified in 2013 to 2017 (i.e., losses that would have expired in 2018 may be carried forward for an additional 5 years if the enterprise qualified in 2018).

COVID-19 Emergency Measures

In response to COVID-19 pandemic, China announced the extension of loss carry forward from 5 to 8 years for losses incurred by film industry enterprises until 31 December 2021 (see Sec 10.5.).