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Taxation | 12 Months Ended
--- | ---
Dec. 31, 2021
Taxation |
Taxation |
13. | Taxation
(a) | Income taxes
Cayman Islands Under the current laws of the Cayman Islands, the Company, and its intermediate holding companies in the Cayman Islands are not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company or its subsidiaries in the Cayman Islands to their shareholders, no Cayman Islands withholding tax will be imposed. British Virgin Islands (“BVI”) Subsidiaries in the BVI are exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI. Hong Kong Subsidiaries in Hong Kong are subject to 16.5% income tax on their taxable income generated from operations in Hong Kong. For the years ended December 31, 2019, 2020 and 2021, the first HK$2 million of profits earned by one of the Company’s subsidiaries incorporated in Hong Kong is taxed at half the current tax rate (i.e. 8.25%) while the remaining profits will continue to be taxed at the existing 16.5% tax rate. The payments of dividends by these companies to their shareholders are not subject to any Hong Kong withholding tax. China Under the EIT Law, Foreign Invested Enterprises (“FIEs”) and domestic companies would be subject to EIT at a uniform rate of 25%. Preferential tax treatments will continue to be granted to FIEs or domestic companies which conduct businesses in certain encouraged sectors and to entities otherwise classified as “Software Enterprises”, “Key Software Enterprises” and/or “High and New Technology Enterprises” (“HNTEs”). The EIT Law became effective on January 1, 2008. Boguan, NetEase Hangzhou and certain other PRC subsidiaries were qualified as HNTEs and enjoyed a preferential tax rate of 15% for 2019, 2020 and 2021. In 2019 and 2020, Boguan, NetEase Hangzhou and certain other PRC subsidiaries were also qualified as a Key Software Enterprise to enjoy preferential tax rate of 10% for 2018 and 2019. The related tax benefit was recorded in 2019 and 2020, respectively. The Key Software Enterprise status is subject to review by the relevant authorities every year. In 2021, no subsidiaries were qualified as a Key Software Enterprise for 2020. The aforementioned preferential tax rates are subject to annual review by the relevant tax authorities in China. The following table presents the combined effects of EIT exemptions and tax rate reductions enjoyed by the Group for the years ended December 31, 2019, 2020 and 2021 (in thousands except per share data): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31,
​ |  | 2019 |  | 2020 |  | 2021
​ | ​ | RMB | ​ | RMB | ​ | RMB
Aggregate amount of EIT exemptions and tax rate reductions |  | 1,665,199 |  | 1,969,414 |  | 2,238,907
Earnings per share effect, basic |  | 0.52 |  | 0.60 |  | 0.67
Earnings per share effect, diluted |  | 0.51 |  | 0.59 |  | 0.66
​ The following table sets forth the component of income tax expenses of the Group for the years ended December 31, 2019, 2020 and 2021 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31,
​ |  | 2019 |  | 2020 |  | 2021
​ | ​ | RMB | ​ | RMB | ​ | RMB
Current tax expense |  | 2,764,097 |  | 2,953,670 |  | 3,720,321
Deferred tax expense |  | 150,629 |  | 88,179 |  | 407,948
Income tax expenses |  | 2,914,726 |  | 3,041,849 |  | 4,128,269
​ The following table presents a reconciliation of the differences between the statutory income tax rate and the Group’s effective income tax rate for the years ended December 31, 2019, 2020 and 2021: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | For the year ended December 31,
​ | ​ | 2019 | ​ | 2020 | ​ | 2021
​ | ​ | % | ​ | % | ​ | %
Statutory income tax rate |  | 25.0 |  | 25.0 |  | 25.0
Permanent differences |  | (2.8) |  | (1.9) |  | (2.7)
Effect due to different tax rates applicable to overseas entities |  | (0.9) |  | (0.5) |  | (1.8)
Effect of lower tax rate applicable to Software Enterprises, Key Software Enterprise and HNTEs |  | (13.6) |  | (16.5) |  | (10.1)
Change in valuation allowance |  | 4.9 |  | 6.8 |  | 3.9
Effect of withholding income tax (d) |  | 5.2 |  | 6.9 |  | 5.3
Effective income tax rate |  | 17.8 |  | 19.8 |  | 19.6
​ As of December 31, 2021, certain entities of the Group had net operating tax loss carry forwards as follows (in thousands): ​
​ | ​ | ​
​ |  | RMB
Loss expiring in 2022 |  | 689,266
Loss expiring in 2023 |  | 3,335,068
Loss expiring in 2024 |  | 3,243,489
Loss expiring in 2025 | ​ | 2,864,732
Loss expiring after 2026 |  | 3,919,521
​ |  | 14,052,076
​ Full valuation allowance was provided on the related deferred tax assets as the Group’s management does not believe that sufficient positive evidence exists to conclude that recoverability of such deferred tax assets is more likely than not to be realized.
(b) | Sales tax
Pursuant to the provision regulation of the PRC on VAT and its implementation rules, the Company’s subsidiaries and VIEs are generally subject to VAT at a rate of 6% from revenues earned from services provided or 16% from sales of general goods, which was reduced to 13% effective from 1 April, 2019.
(c) | Deferred tax assets and liabilities
The following table presents the tax impact of significant temporary differences that give rise to the deferred tax assets and liabilities as of December 31, 2020 and 2021 (in thousands): ​
​ | ​ | ​ | ​ | ​
​ |  | December 31, |  | December 31,
​ | ​ | 2020 | ​ | 2021
​ | ​ | RMB | ​ | RMB
Deferred tax assets: | ​ | ​ | ​ | ​
Deferred revenue, primarily for advanced payments from online games customers |  | 624,565 |  | 776,719
Accruals |  | 547,591 |  | 641,198
Depreciation of fixed assets |  | 6,911 |  | 11,557
Amortization of intangible assets |  | 6,623 |  | 4,331
Net operating tax loss carry forward |  | 3,156,923 |  | 3,513,019
​ |  | 4,342,613 |  | 4,946,824
Less: valuation allowance |  | (3,255,854) |  | (3,648,870)
Total |  | 1,086,759 |  | 1,297,954
​
​ | ​ | ​ | ​ | ​
​ |  | December 31, |  | December 31,
​ | ​ | 2020 | ​ | 2021
​ | ​ | RMB | ​ | RMB
Deferred tax liabilities: | ​ | ​ | ​ | ​
Withholding income tax(d) |  | 621,204 |  | 1,257,552
Others |  | 92,235 |  | 88,322
Total |  | 713,439 |  | 1,345,874
​ The Group does not believe that sufficient positive evidence exists to conclude that the recoverability of deferred tax assets of certain entities of the Group is more likely than not to be realized. Consequently, the Group has provided full valuation allowances for certain entities of the Group on the related deferred tax assets. The following table sets forth the movement of the aggregate valuation allowances for deferred tax assets for the periods presented (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Balance at |  | Provision/(Write-off) |  | Balance at
​ | ​ | January 1 | ​ | for the year | ​ | December 31
​ | ​ | RMB | ​ | RMB | ​ | RMB
2019 |  | 1,269,615 | ​ | 879,264 | ​ | 2,148,879
2020 |  | 2,148,879 | ​ | 1,106,975 | ​ | 3,255,854
2021 |  | 3,255,854 | ​ | 393,016 | ​ | 3,648,870
​
(d) | Withholding income tax
The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an enterprise in China to its non-resident enterprise investors. A lower withholding income tax rate of 5% is applied if the non-resident enterprise investor is registered in Hong Kong with at least 25% equity interest in the PRC enterprise and meets the relevant conditions or requirements pursuant to the tax arrangement between mainland China and Hong Kong. On February 22, 2008, the Ministry of Finance and State Taxation Administration jointly issued a circular which stated that for FIEs, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors. The Group accrued RMB846.6 million, RMB1,056.9 million and RMB1,124.4 million (US$176.4 million) withholding tax liabilities associated with all of its earnings expected to be distributed from its PRC subsidiaries to overseas for general corporate purposes in 2019, 2020 and 2021, respectively. The Group have repatriated a portion of these earnings and paid related withholding income tax in 2019, 2020 and 2021. As of December 31, 2020 and 2021, there were approximately RMB1,110.9 million and RMB1,104.2 million (US$173.3 million) unrecognized deferred tax liabilities related to undistributed earnings of the Group’s PRC subsidiaries, respectively. And the Group still intends to indefinitely reinvest these remaining undistributed earnings in its PRC subsidiaries. ​

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=122134291&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=121826272&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(h)(2)) -URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 + Details
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