On September 18, in order to further encourage enterprise R&D and innovation, the Ministry of Finance and other four departments issued the Announcement on Increasing the Proportion of R&D expenses deducted by Integrated circuit and industrial mother-machine enterprises (hereinafter referred to as the Announcement).

The relevant person in charge of the State Administration of Taxation has introduced that research and development expenses plus deduction, refers to the enterprise’s research and development expenses can be deducted on the basis of the actual amount of taxable income, and then a certain proportion of deduction, the policy through positive tax incentives to encourage enterprises to increase investment in research and development.

The “Announcement” proposed that the R&D expenses actually incurred in the research and development activities of integrated circuit enterprises and industrial mother-machine enterprises, which did not form intangible assets and were included in the current profit and loss, on the basis of actual deduction in accordance with the provisions, during the period from January 1, 2023 to December 31, 2027, 120% of the actual amount will be deducted before tax; If intangible assets are formed, they shall be amortized before tax at 220% of the cost of intangible assets during the said period.

PCI-4060

Increase the deduction amount for integrated circuit and industrial mother-machine enterprises

The policy of pre-tax deduction of research and development expenses has been implemented in China for a long time according to institutional arrangements, and enterprises in other industries can enjoy it except tobacco manufacturing, accommodation and catering, wholesale and retail, real estate, leasing and business services, and entertainment.

According to the previous provisions, the R&D expenses actually incurred in the enterprise’s R&D activities, which do not form intangible assets and are included in the current profit or loss, shall be deducted according to the actual deduction in accordance with the provisions, and then deducted according to the actual amount of 100% of the tax; If intangible assets are formed, 200% of the cost of intangible assets shall be amortized before tax.

Therefore, the introduction of this “Announcement” means that integrated circuit enterprises and industrial mother-machine enterprises can calculate their own additional deduction amount based on the actual research and development expenses.

According to the provisions of the Announcement, the specific scope of research and development expenses includes personnel and labor costs, direct input costs, depreciation costs, amortization of intangible assets, new product design fees, new process procedures, clinical trial fees for new drug research and development, field test fees for exploration and development technologies, other related expenses and other expenses stipulated by the Ministry of Finance and the State Administration of Taxation.

According to the provisions of the Announcement, the expenses incurred by entrusting overseas research and development activities shall be included in the entrusting party’s overseas research and development expenses according to 80% of the actual amount of the expenses. The part of the entrusted overseas R&D expenses that does not exceed two-thirds of the qualified domestic R&D expenses may be deducted from the enterprise income tax in accordance with regulations.