The State Administration of Taxation (the “SAT”) recently issued the Announcement of the State Administration of Taxation on Matters Concerning the Deduction of Liability Insurance Premiums Before the Calculation of Enterprise Income Tax (hereinafter referred to as the “Announcement”), stipulating that insurance premiums required to be paid by enterprises for employer liability insurance, public liability insurance and other types of liability insurance, are deductible from their taxable income.

Liability insurance has become an increasingly frequent operational expense for enterprises, and it functions as a significant tool for mitigating corporate risks in operational liabilities, by offering concrete protection for the rights and interests of parties involved and by promoting social stability and harmony. Since premiums paid by enterprises for liability insurance are expenses that are actually incurred, and since liability insurance is defined as a type of property insurance by the PRC Insurance Law, in accordance with the relevant provisions of the Enterprise Income Tax Law and the Implementing Regulations of the Law of the People's Republic of China on Enterprise Income Tax, the relevant tax treatment is prescribed as follows:

Liability insurance, such as employer liability insurance and public liability insurance, refers to insurance taken out by an enterprise to be insured when an incident covered by the insurance policy occurs and such enterprise is liable for compensation for a third party’s loss or damage. Because the premiums paid by enterprises for liability insurance, such as employer liability insurance and public liability insurance, are expenses that are actually incurred, and because liability insurance is defined as a type of property insurance by the Insurance Law, under the Enterprise Income Tax Law and its implementing regulations, the Announcement specifies that required insurance premiums that are actually paid by enterprises for employer liability insurance, public liability insurance and other types of liability insurance, are deductible from taxable income for enterprise income tax purposes.

(Source: Sina News)