IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
← back to the state act
Inception date: 01 Jan 2008 | Removal date: 31 Dec 2015
Still in force

Tax or social insurance relief

On the 10 December 2008, the PRC State Administration of Taxation announced a plan to provide benefits to certain R&D firms by allowing 'super-deductions' of 150% to certain pre-tax expenses.

To qualify for the scheme, the announcement states that firms must be carrying out R&D activities with clearly-defined purposes on a continuous basis and systematically carried out in order to come up with new scientific/technical knowledge, including:

  • applying new science/technology knowledge in a novel way;
  • improving current technologies, products, services or techniques in a meaningful way.

The firm must also fall into one of the specified industry types on one of two 2007 lists of 'prioritised high technology' industries.

If a firm can successfully be classified as carrying out 'R&D activities' based on the above criteria, then it can claim 150% of the value for the following types of expenses as an income taxes deduction:

  • Design fees for new products, expenses for formulating procedures relating to new skills, and expenditures for technical books and information and translation fees directly related to R&D activities;
  • Materials, fuel and power consumed directly for R&D activities;
  • Salaries, wages, bonuses and allowances of employees directly engaged in R&D activities;
  • Depreciation expenses or rentals for tools and equipment exclusively used for R&D activities;
  • Amortization expenses of intangible assets such as software, patents, non-patented technologies exclusively used for R&D activities;
  • Development and manufacturing costs of equipment and moulds exclusively used for intermediate testing
  • and experiments;
  • On-site testing expenditures for exploration technology;
  • Expenditures for verification, assessment and inspection of R&D results.

According to several sources, the implementation of the super-deductions was very location-specific, with local authorities granting or disallowing deductions based on their own interpretation of the criteria.

The policy came into effect retroactively from the start of 2008.

UPDATE: In September 2013, the definitions were laid out more specifically in Caishui 2013/70, which confirmed that the following types of expenses will be eligible:

  • Basic pension fund, basic medical insurance, work-related injury insurance, unemployment insurance, maternity insurance and housing fund contributed by a company for its employees directly engaging in R&D activities in accordance with regulations set by the State Council or relevant provincial-level government authorities;
  • Costs of operational maintenance, adjustment, testing, and repair of tools and equipment incurred exclusively for R&D activities;
  • Costs of samples and prototypes that do not constitute fixed assets, and expenses for general testing solutions;
    Clinical trial costs for R&D activities for new drugs;
  • Certification cost for R&D results.

Previously, the list was less well-defined and led to local tax authorities interpreting it in different ways, and denying deductions for firms when they should indeed have received them. This new announcement is intended to rectify this.

In 2015, some of the definitions were rewritten. Please ee related state acts for more information.

AFFECTED COUNTRIES

MAP
TABLE
EXPORT

AFFECTED SECTORS AND PRODUCTS

531 Buildings
676 Supporting services for air or space transport
692 Water distribution (on own account)
811 Research & development in natural sciences & engineering
812 Research & development in social sciences & humanities
833 Engineering services
834 Scientific & other technical services
862 Support services to mining
863 Support services to electricity, gas & water distribution
881 Food, beverage & tobacco manufacturing services
882 Textile, wearing apparel & leather manufacturing services
883 Wood & paper manufacturing services
884 Petroleum, chemical & pharmaceutical manufacturing services
885 Rubber, plastic & non-metallic mineral manufacturing services
886 Basic metal manufacturing services
887 Fabricated metal product & machinery manufacturing services
888 Transport equipment manufacturing services
889 Other manufacturing services
891 Publishing, printing & reproduction services
892 Moulding, pressing & similar plastic manufacturing services
893 Forging, stamping & similar metal manufacturing services
894 Recylcling services, on a fee or contract basis
911 Administrative services of the government
912 Public administrative services
941 Sewerage, sewage treatment & septic tank cleaning services
961 Audiovisual & related services

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