According to the Notice of State Taxation Administration of The People's Republic of China, People's Republic of China (PRC) on Issuing Announcement (People's Republic of China (PRC) State Taxation Administration of The People's Republic of China Announcement No.2011No.25):

Article 3 Asset losses that are allowed to be deducted before enterprise income tax refer to reasonable losses (hereinafter referred to as actual asset losses) that occur during the actual disposal and transfer of the above-mentioned assets by enterprises, and losses (hereinafter referred to as statutory asset losses) that are calculated and confirmed according to the conditions stipulated in the Notice and these Measures, although the above-mentioned assets are not actually disposed of or transferred by enterprises.

Article 4 Assets losses actually incurred by an enterprise shall be declared and deducted in the year when they actually occurred and were treated by accounting; The loss of legal assets shall be deducted from the annual declaration provided by the enterprise to the competent tax authorities to prove that the assets have met the conditions for confirming the loss of legal assets and have been accounted for.

Article 5 Asset losses incurred by an enterprise shall be reported to the competent tax authorities in accordance with the prescribed procedures and requirements, and then deducted before tax. Undeclared losses shall not be deducted before tax.