Required.

For the offset of receivables and payables of the same domestic company, if the other party is a Chinese company, as long as the company 1) issues relevant value-added tax invoices to the other party in accordance with the provisions of Chinese tax laws; 2) obtains the other party's VAT invoice; 3) After paying the relevant taxes, the receivables and payables can be offset directly with the agreement of both parties. For the offsetting of receivables and payables of the same overseas company, when the other party is an overseas company, if the receivables and payables both involve receivables and payables under services, before offsetting the receivables and payables, the provisions of Chinese tax law should be followed: 1) The company should withhold and remit the taxes that overseas companies should pay in China due to their income from China; 2) The company should pay taxes on the income from overseas. In actual operation, any payment to an overseas company, regardless of the amount, requires contract filing with the tax bureau. If a single payment exceeds US$50,000, payment filing is required. When banks handle relevant business, they will require enterprises to issue relevant contract filing or payment filing certificates. When collecting service fees from overseas companies, you need to provide a service contract and proforma invoice to the bank for foreign exchange settlement. During our audit, we found that when many customers offset the receivables and payables of the same overseas company, since they do not need to go to the bank to collect and pay, they do not need to issue contract filing and payment filing documents to the bank, so they only do it in their accounts. However, the contract registration/payment registration and tax withholding were not carried out in accordance with the relevant Chinese tax laws. We still recommend that companies should complete relevant tax filing procedures and withhold and pay taxes in accordance with tax laws to avoid possible tax risks. When the transaction involving receivables and payables to an overseas company is trade in goods, receivables and payables cannot in principle be offset. Because China's foreign exchange control implements two lines of revenue and expenditure, and China Customs has a strict supervision and registration system for the import and export of goods trade, only after the State Administration of Foreign Exchange has completed the relevant balance write-off procedures can the same overseas company be The receivables and payables are offset. In practice, SAFE is unlikely to accept the reasons for such offsets of receivables and payables. To sum up, if the receivables/receivables with overseas companies are due to trade in goods, then whether they are offset with the payables/receivables due to trade in goods or offset with the payables/receivables formed under services, All are not feasible. The difference in income tax between the offset of receivables and payables and the abandonment of claims and debts (debt restructuring). On the surface, the offset of receivables and payables seems to mean that the company has given up a claim and been forgiven a debt at the same time, except that the creditor and the debtor are the same person. . So, does the offset of receivables and payables have the same impact on income tax as the company's surrender of claims/forgiveness of debts? First of all, the nature of the waiver of claims under the offset of receivables and payables is different from the ordinary waiver of claims. According to the relevant provisions of the PRC Income Tax Law, losses will be deducted before tax when they are actually incurred. In practice, when there is objective evidence that the company will not be able to recover all the receivables according to the original terms, bad debt provisions should be made and the corresponding bad debt losses should be recognized. The bad debt losses incurred at this time are not allowed to be deducted before income tax. buckle. When the accounts receivable cannot be recovered after efforts to recover them, only if it is confirmed that the accounts receivable cannot be recovered can they be deducted before income tax. The income from debt forgiveness needs to be included in the income taxable income and paid income tax. Offsetting an entity's concurrent receivables and payables does not mean giving up a claim and exempting a debt. The company still performs the relevant claims and debts, but it is just to simplify the procedures and calculate the net amount after offsetting receivables and payables. The amount is settled with the other company. As long as the transaction forming the creditor's rights and debts is genuine, the claims and debts of the same entity can be directly offset, and there is no need to recognize losses and income from the abandonment of claims and debt relief, so there is no impact on income tax. Of course, the offset of receivables and payables of the same company should be agreed with the other party to provide sufficient basis for accounting processing. I have twenty years of financial and taxation experience in Chinese-owned and foreign-owned firms and investment companies. I welcome your inquiries on various financial and taxation issues.