Up to 30% of advertising and business promotion expenses can be deducted within the current year. The cosmetics, pharmaceutical, and beverage manufacturing sectors have received favorable policy news. Recently, the Ministry of Finance and the State Taxation Administration issued an announcement regarding the pre-tax deduction of advertising and business promotion expenses, specifying that for enterprises in cosmetics manufacturing or sales, pharmaceutical manufacturing, and beverage manufacturing (excluding alcohol production), the portion of advertising and business promotion expenses that does not exceed 30% of the current year's sales (business) revenue is allowable for deduction; the excess portion can be carried forward to subsequent tax years for deduction. This announcement will be effective from January 1, 2026, to December 31, 2027.
Ge Yuyu, an associate professor at the Shanghai National Accounting Institute, stated that the aforementioned policy shows no new changes compared to previous regulations and is simply a continuation of an existing policy after its expiration. An experienced tax director from a direct-selling cosmetics company remarked, "This policy has been extended for many years. Since our company has low advertising and promotion expenses, it has no impact on us."
According to the current Enterprise Income Tax Law and its implementation regulations, actual, revenue-related, and reasonable expenditures incurred by enterprises—including costs, expenses, taxes, losses, and other outlays—are deductible when calculating taxable income. Specifically, for eligible advertising and business promotion expenses, unless otherwise stipulated by the financial and tax authorities under the State Council, the portion not exceeding 15% of the current year's sales (business) revenue is deductible, with any excess allowable for carry-forward to future tax years.
Given that cosmetics manufacturing or sales, pharmaceutical manufacturing, and beverage manufacturing often require more substantial market promotion and brand building efforts, the proportion of advertising and business promotion expenses to operating revenue in these three industries is relatively high. To alleviate their immediate cash flow pressure and encourage increased investment in advertising, the Ministry of Finance and the State Taxation Administration first introduced a policy in 2009 allowing these three industries to deduct up to 30% of such expenses relative to annual sales revenue, with excess amounts eligible for carry-forward.
The 30% deduction rate for the cosmetics, pharmaceutical, and beverage industries is significantly higher than the 15% rate applicable to other sectors. This policy has undergone minor adjustments and multiple extensions since its inception, with the previous extension set to expire at the end of 2025. The recent announcement extends this beneficial policy until the end of 2027.
This extension provides short-term assurance for enterprises in cosmetics manufacturing or sales, pharmaceutical manufacturing, and beverage manufacturing (excluding alcohol production), effectively easing their cash flow pressures. The announcement also reiterates that tobacco enterprises are strictly prohibited from deducting any tobacco-related advertising and business promotion expenses when calculating taxable income, aligning with health advisories and the Advertising Law's ban on tobacco promotion.
Furthermore, the announcement reaffirms provisions for affiliated enterprises that sign advertising and business promotion expense sharing agreements. Specifically, one party can deduct its eligible expenses within the deductible limit, or allocate part or all of them to another affiliated party for deduction. The receiving party, when calculating its own deduction limit, may exclude the expenses allocated to it under such an agreement.
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