China has extended preferential tax rules through 2027, permitting cosmetic, pharmaceutical, and beverage firms to deduct advertising costs up to 30% of turnover while maintaining a total deduction ban for the tobacco industry.
China’s Ministry of Finance and State Taxation Administration (STA) have announced the extension of preferential tax deduction rules for advertising and promotional (A&P) expenses on 22 December 2025 under the newly issued Announcement No. 16 of 2025.
The announcement took effect on 1 January 2026 and runs through 31 December 2027.
According to the announcement, companies in the cosmetic, pharmaceutical, and non-alcoholic beverage industries can continue to deduct A&P costs up to 30% of their annual turnover. This policy ensures that high-spending brands can manage their tax burdens effectively, as any expenses exceeding the 30% cap in the current year can be carried forward for deduction in future tax periods.
The updated guidance also provides significant administrative flexibility for corporate groups. Associated enterprises operating under cost-sharing agreements may choose to allocate these expenses between parties. This allows one entity to claim the deduction or shift the expense to another party within the agreement, provided the total amount remains within the 30% limit. To streamline compliance, the party receiving the allocation can exclude those specific costs when calculating its own individual deduction ceiling.
However, Tobacco companies are explicitly excluded from these deductions. Advertising and promotion expenses for tobacco products cannot be deducted when calculating taxable income.
By replacing the previous 2020 regulations, this two-year extension aims to provide regulatory clarity and support business continuity for major manufacturing and sales sectors through the end of 2027.
