The Ministry of Finance and State Administration of Taxation (SAT) jointly issued a Notice on 30 May 2012 (Cai Shui [2012] No. 48) regarding the deduction of advertising and promotion expenses.

The notice applies in the period from 1 January 2011 to 31 December 2015 and is summarized below.

The advertising and promotion expenses relating to manufacturing and sales of cosmetic products and to pharmacy and beverage (non-alcoholic) manufacturing are deductible up to 30% of the sale proceeds of the current year. The excess of 30% can be carried over to the following years for deduction.

The Implementation Rules of Enterprise Income Tax provide for 15% deduction of such expenses for all industries and the Ministry of Finance and SAT issued a notice in 2009 (Cai Shui [2009] No. 72) to increase this general 15% to 30% for the cosmetic, pharmacy and soft drink industries.

However, Cai Shui [2009] No. 72 ceased to apply on 31 December 2010. The notice [2012] No. 48 extends the 30% deduction to 31 December 2015.

An associated enterprise that has concluded a cost-sharing arrangement on advertisement and promotion expenses with another associated enterprise may, within the deduction limit of 30% of the sale proceeds, deduct the expenses in the enterprise itself or allocate a portion or the whole amount to another associated enterprise for deduction.

Another associated enterprise need not take into account the amounts allocated in determining its own deduction limit of 30%.

Further, the notice provides that the advertisement and promotion expenses incurred by tobacco industries are excluded from deduction for enterprise income tax purposes.

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