In April 2022, a college published an article titled "Application for Requesting the Tax Bureau to Perform Tax Duties in Accordance with the Law" (deleted the next day), with the signatures of teachers and students, requesting the competent tax authorities to enjoy the tax incentives for non-profit organizations to be exempted from corporate income tax. During this period, the local education department issued a letter to prove that the college is a non-profit private school and should enjoy the preferential policy of exemption from enterprise income tax in line with public schools. However, the local competent tax authority submitted that the college did not submit an application for tax exemption status and could not enjoy tax exemption according to the regulations. The focus of the dispute in this case is whether the income from tuition fees and accommodation fees obtained by private schools is tax-exempt income. In this issue of the Voice of Finance and Taxation, we will take private non-profit schools as the prototype to take a look at the conditions and precautions for non-profit organizations to enjoy the preferential exemption of enterprise income tax, so as to facilitate readers to prepare in advance in practice and reduce tax risks.
1. Basic provisions on the exemption of non-profit organizations from enterprise income tax.
According to Article 26 (4) of the Enterprise Income Tax Law of the People's Republic of China, the income of qualified non-profit organizations is exempt from enterprise income tax. At the same time, according to Article 84 of the Regulations for the Implementation of the Enterprise Income Tax Law of the People's Republic of China, non-profit organizations must meet the following conditions:
1) Public institutions, social groups, associations, social service organizations, religious activity sites, religious schools, and other non-profit organizations designated by the Ministry of Finance and the State Administration of Taxation established or registered in accordance with relevant national laws and regulations;
2) Engaging in public interest or non-profit activities;
3) In addition to being used for reasonable expenses related to the organization, all the income obtained shall be used for public welfare or non-profit undertakings registered and approved or provided for in the charter;
4) Property and its fruits are not used for distribution, but do not include reasonable wages and salaries;
5) In accordance with the provisions of the registration approval or charter, the remaining assets of the organization after cancellation are to be used for public interest or non-profit purposes, or the registration management organs are to adopt methods such as transferring them to organizations with the same nature and purpose as the organization, and make an announcement to the public;
6) The investor does not retain or enjoy any property rights to the property invested in the organization, and the term "investor" in this paragraph refers to legal persons, natural persons and other organizations other than the people's ** at all levels and their departments;
7) The salary and welfare expenses of the staff shall be controlled within the prescribed proportion, and the assets of the organization shall not be distributed in the same proportion, wherein: the average salary level of the staff shall not exceed twice the average salary level of the same industry and similar organizations in the prefecture and city level (including the prefecture and city level) where the tax registration is located, and the staff welfare shall be implemented in accordance with the relevant provisions of the state;
8) The taxable income and its related costs, expenses and losses shall be accounted for separately from the tax-exempt income and its related costs, expenses and losses.
From the above provisions, it can be seen that in order for private non-profit organizations to enjoy the preferential exemption of enterprise income tax, they must first register as a non-profit organization in accordance with the regulations, and secondly, they must meet other conditions of the State Administration of Taxation on non-profit organizations.
2. The main issues in dispute in the case.
1) Whether the entity enjoys tax exemption status.
From the information at the time of the case, it is known that the college has applied for the registration of a private non-enterprise unit issued by the relevant department. Non-profit organizations that have not yet applied for tax exemption qualifications, but meet the requirements according to Cai Shui [2018] No. 43 document shall apply for tax exemption qualifications to the provincial tax authorities where they are located, and the tax exemption qualifications will be announced regularly after the financial and tax review. Private non-profit organizations may enjoy tax exemption benefits upon application and obtaining tax exemption status.
2) Whether the income is tax-exempt.
Is it possible for the college to enjoy the preferential policy of exemption from corporate income tax if it applies for tax exemption status? Again, the answer is no. According to the relevant provisions of Cai Shui [2009] No. 122 document, the tax-exempt income of non-profit organizations includes (1) income from donations from other units or individuals, (2) other subsidy income other than the financial appropriation stipulated in Article 7 of the Enterprise Income Tax Law of the People's Republic of China, but does not include the income obtained from the purchase of services, (3) membership dues collected in accordance with the provisions of the civil affairs and finance departments at or above the provincial level, (4) non-taxable income and interest income from bank deposits derived from tax-exempt income, (5) the Ministry of Finance, Other income stipulated by the State Administration of Taxation, so that it can be seen that income such as tuition fees is not included in the listed tax-exempt income, and cannot enjoy tax exemption benefits according to the regulations.
According to the relevant provisions of the latest "People's Promotion Law", private non-profit schools enjoy the same preferential tax policies as public schools. According to Article 7 of the Enterprise Income Tax Law, the following income in the total income is non-taxable income: (1) financial allocation; (B) in accordance with the law to collect and include in the financial management of administrative fees, **; 3) Other non-taxable income specified in ** is non-taxable income. And can private non-profit schools also be treated as non-taxable income? It is believed that firstly, public schools are treated as non-taxable income and issued fiscal bills, and secondly, the income of public schools can be treated as non-taxable income, but the part that is not handed over should also pay enterprise income tax, while private non-profit schools generally cannot be included in financial management, so they cannot be treated as non-taxable income.