[Question] When foreign-invested enterprises implement the Accounting System for Business Enterprises, do they accrue employee welfare expenses according to 14% of total wages?
[Answer] In the "Answers to Questions on Implementing the Accounting System for Enterprises and Related Accounting Standards" (10, Caishui [2003]No.) and in accordance with the Notice of the Ministry of Finance on Printing and Distributing the Provisions on Relevant Issues Concerning the Implementation of the Accounting System for Foreign-invested Enterprises (Caishui [2001] No.60), the balance of retirement pension and other funds, insurance benefits and various state subsidies, former employees' rewards and welfare funds payable to China employees from the original "wages payable" subject is accounted for. As well as the employee bonus and welfare fund extracted from after-tax profits by foreign-invested enterprises in accordance with regulations and its use, and two detailed subjects should be set up: "welfare fund extracted from expenses" and "employee bonus and welfare extracted from after-tax profits".
According to the Notice of State Taxation Administration of The People's Republic of China on the Tax Treatment of Employees' Collective Welfare Funds Deposited by Foreign-invested Enterprises and Foreign Enterprises for Employees Other than Medical Insurance (Guo [1999] No.709), foreign-invested enterprises are not allowed to withdraw other employees' welfare funds before tax, except for depositing three funds such as medical insurance for employees and withdrawing employees' education funds and trade union funds according to the current financial accounting system. Therefore, after the implementation of "Enterprise Accounting System", foreign-invested enterprises will no longer accrue welfare funds from expenses according to 14% of total wages. The welfare expenses incurred by the enterprise in that year shall be truthfully included in the current profits and losses. If the actual welfare expenses exceed the amount allowed to be deducted before tax according to the provisions of the tax law, they shall be adjusted according to the provisions of the tax law when paying taxes.
The balance of "welfare funds payable-employee rewards and benefits extracted from after-tax profits" and the employee rewards and welfare funds extracted from after-tax profits in future years shall be used in accordance with the purposes stipulated by law.
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