New Policy Guidelines on Pre-tax Deduction of R&D Expenses
I. Specific Policies on Pre-tax Deduction of R&D Expenses
Applicable Subjects
Enterprises in all industries are eligible, except for those in the tobacco manufacturing industry, lodging and catering industry, wholesale and retail trade, real estate industry, leasing and business service industry, and entertainment industry.
Preferential content
Enterprises carrying out research and development activities in the actual incurred R & D costs, not formed intangible assets included in the current period of profit and loss, in accordance with the provisions of the basis of the actual deduction, starting from January 1, 2023, and then in accordance with the actual amount of deduction of 100 percent of the amount incurred in the pre-tax; the formation of intangible assets, starting from January 1, 2023, according to the intangible assets cost of 200% amortized before tax.
The above policies are implemented as institutional arrangements on a long-term basis.
Policy Basis
1. Circular of the Ministry of Finance, State Administration of Taxation and Ministry of Science and Technology on Improving the Policy of Pre-Tax Deduction of Research and Development Expenses (Cai Shui [2015] No. 119)
2. Announcement of the Ministry of Finance and the State Administration of Taxation on Further Improvement of the Policy of Pre-Tax Deduction of Research and Development Expenses (No. 7 of 2023)
II. Scope of Activities Applicable to the Policy of Additional Deduction of R&D Expenses
Applicable Subjects
Except for enterprises in the tobacco manufacturing industry, accommodation and catering industry, wholesale and retail trade, real estate industry, leasing and business services industry, and entertainment industry, all other industries are eligible.
Applicable Activities
Systematic activities with clear objectives that are continuously carried out by an enterprise for the purpose of acquiring new knowledge in science and technology, creatively utilizing new knowledge in science and technology, or substantially improving technology, products (services), or processes.
The following activities are not subject to the pre-tax deduction policy:
1. Routine upgrading of an enterprise's products (services).
2. Direct application of a scientific research result, such as the direct adoption of a publicly available new process, material, device, product, service or knowledge.
3. technical support activities provided by a company to its customers after commercialization.
4. a repetition or simple change in an existing product, service, technology, material, or process.
5. market research studies, efficiency surveys, or management studies.
6. Quality control, testing and analysis, repair and maintenance as part of an industrial (service) process or routine.
7. Research in the social sciences, arts or humanities.
Policy basis
"Notice of the Ministry of Finance, State Administration of Taxation, Ministry of Science and Technology on Improving the Policy of Adding Deductions for Research and Development Expenses before Tax" (Cai Shui [2015] No. 119)
Third, the scope of research and development expenses that can be added to the deductions
Applicable subjects
Except for the tobacco manufacturing industry, accommodation and catering industry, wholesale and retail industry, real estate industry, rental and business services, entertainment industry, etc., in addition to other industries enterprises can enjoy.
Contents of the discount
1. Personnel labor costs.
Wages and salaries, basic pension insurance premiums, basic medical insurance premiums, unemployment insurance premiums, industrial injury insurance premiums, maternity insurance premiums and housing provident fund for personnel directly engaged in R&D activities, as well as labor costs for external R&D personnel.
2. Direct input costs.
(1) The cost of materials, fuel and power directly consumed by R&D activities.
(2) for intermediate tests and product trial production of molds, process equipment development and manufacturing costs, does not constitute a fixed asset samples, prototypes and general test means acquisition costs, test products inspection costs.
(3) Costs of operation and maintenance, adjustment, inspection and repair of instruments and equipment used for research and development activities, as well as leasing fees for instruments and equipment used for research and development activities leased through operating leases.
3. Depreciation expenses.
Depreciation expense of instruments and equipment used for R&D activities.
4. Amortization of intangible assets.
Amortization expense of software, patents, and non-patented technologies (including licenses, proprietary technologies, designs and calculation methods, etc.) used for R&D activities.
5. Fees for the design of new products, development of new process protocols, clinical trials for the development of new drugs, and field trials for exploration and development technologies.
6. Other related expenses.
Other costs directly related to R & D activities, such as technical library and data fees, data translation fees, expert consulting fees, high-tech R & D insurance premiums, R & D results of the search, analysis, evaluation, argumentation, appraisal, review, assessment, acceptance costs, intellectual property rights, application fees, registration fees, agency fees, travel expenses, meeting expenses, employee welfare costs, supplemental pension insurance premiums, supplemental medical insurance premiums. The total amount of such costs shall not exceed the amount of the accrued expenses. The total amount of such expenses shall not exceed 10% of the total amount of deductible R&D expenses.
Policy Basis
1. Notice of the Ministry of Finance, State Administration of Taxation and Ministry of Science and Technology on Improving the Policy of Pre-Tax Deduction of Research and Development Expenses (Cai Shui [2015] No. 119)
2. Announcement of the State Administration of Taxation on the Issues Relating to the Scope of Pre-Tax Deduction of Research and Development Expenses (No. 40 of 2017)
IV, Policy on Additional Deduction of Commissioned, Cooperative and Concentrated R&D Expenses
Applicable Subjects
Enterprises in other industries are eligible except for the tobacco manufacturing industry, accommodation and catering industry, wholesale and retail trade, real estate industry, leasing and business services industry, and entertainment industry.
Determination Criteria
1. Expenses incurred by an enterprise entrusting R&D activities to an external organization or an individual shall be included in the R&D expenses of the entrusted party in accordance with 80% of the actual amount of the expenses incurred and shall be calculated as a deduction, and no deduction shall be allowed to be added by the entrusted party. Costs incurred for commissioning R&D activities outside China shall be included in the commissioning party's commissioned overseas R&D expenses in accordance with 80% of the actual amount of costs incurred. The portion of the commissioned overseas R&D expenses not exceeding two-thirds of the qualified domestic R&D expenses can be deducted before the enterprise income tax in accordance with the regulations.
2. Enterprises *** with the cooperative development of the project, by the cooperation of the parties to their own actual R & D costs borne by the calculation of additional deduction.
3. According to the actual situation of production and operation and scientific and technological development of enterprise groups, for the projects with high technological requirements, large amount of investment and the need for centralized research and development, the actual incurred R&D expenses can be reasonably determined in accordance with the principle of consistency of rights and obligations, matching of expenses and revenue sharing, and the apportionment of R&D expenses can be apportioned among beneficiary members, and the relevant members can calculate the additional deduction separately. The relevant member enterprises will calculate the additional deduction respectively.
Policy Basis
1. Notice of the Ministry of Finance, State Administration of Taxation, Ministry of Science and Technology on Improving the Policy of Pre-Tax Deduction of Research and Development Expenses (Cai Shui [2015] No. 119)
2. Notice of the Ministry of Finance, State Administration of Taxation, Ministry of Science and Technology on the Relevant Policy Issues Regarding the Pre-Tax Deduction of R&D Expenses Commissioned by Enterprises Abroad (Cai Shui [2018] No. 64)
3. No.
V. Accounting and Management of the Policy on Additional Deduction of R&D Expenses
Applicable Subjects
Except for enterprises in the tobacco manufacturing industry, accommodation and catering industry, wholesale and retail trade, real estate industry, leasing and business services industry, and entertainment industry, enterprises in other industries are eligible.
Preferential content
1. Enterprises should follow the requirements of the national financial accounting system, accounting for research and development expenditures; at the same time, the enjoyment of additional deduction of research and development costs according to the research and development projects to set up auxiliary accounts, accurately collect and account for the year can be deducted for each of the research and development costs actually incurred. If an enterprise conducts multiple R&D activities in a tax year, it should separately collect the R&D expenses that can be deducted according to different R&D projects.
2. Enterprises should separately account for R&D expenses and production and operation expenses, and accurately and reasonably collect the expenses, and no deduction shall be made if the division is unclear.
Policy basis
"Ministry of Finance, State Administration of Taxation, Ministry of Science and Technology on Improving the Policy of Pre-tax Deduction of Research and Development Costs" (Cai Shui [2015] No. 119)