(Source: https://pltfrm.com.cn)
China offers several tax incentives for foreign companies engaging in Research and Development (R&D) activities. These incentives are part of a broader strategy to encourage technological innovation and development within the country.
- Super Deductions for R&D Expenses: Technology-based small- and medium-sized enterprises (TSMEs) can enjoy substantial deductions on their R&D expenses. From January 1, 2022, if the R&D expenses do not form intangible assets and are included in the current profits and losses, TSMEs can deduct an additional 100% of such R&D expenses from their taxable income. If the R&D expenses have formed intangible assets, they can be amortized before Corporate Income Tax (CIT) at 200% of the actual cost of the intangible assets. This incentive aims to encourage more R&D activities by reducing the taxable income of the companies engaged in such activities.
- Qualifications for Tax Incentives: To qualify for these incentives, certain criteria need to be met, such as the enterprise being registered in China, meeting specific size criteria (in terms of the number of employees and annual sales income or total assets), and compliance with safety and environmental laws. Additionally, the ratio of income from high-tech related operations against total income should not be lower than 60% in the current period.
- 220% R&D Super Deduction: As part of the support for technological innovation, a new 220% R&D super deduction (compared with the
China offers several tax incentives for foreign companies engaging in Research and Development (R&D) activities. These incentives are part of a broader strategy to encourage technological innovation and development within the country.
- Super Deductions for R&D Expenses: Technology-based small- and medium-sized enterprises (TSMEs) can enjoy substantial deductions on their R&D expenses. From January 1, 2022, if the R&D expenses do not form intangible assets and are included in the current profits and losses, TSMEs can deduct an additional 100% of such R&D expenses from their taxable income. If the R&D expenses have formed intangible assets, they can be amortized before Corporate Income Tax (CIT) at 200% of the actual cost of the intangible assets.
- Qualifications for Tax Incentives: To qualify for these incentives, certain criteria need to be met, such as the enterprise being registered in China, meeting specific size criteria (in terms of the number of employees and annual sales income or total assets), and compliance with safety and environmental laws. Additionally, the ratio of income from high-tech related operations against total income should not be lower than 60% in the current period.
- 220% R&D Super Deduction: As part of the support for technological innovation, a new 220% R&D super deduction (compared with the standard 200% deduction) has been implemented for businesses in certain sectors, such as those producing and selling industrial mainframes, key functional components, and numerical control systems. This incentive applies retroactively from January 1, 2023.
These tax incentives reflect China’s commitment to fostering innovation and technological advancement, particularly in high-tech industries. Companies considering R&D activities in China should explore these incentives in detail to understand how they can benefit from them. It’s advisable to consult with tax professionals to navigate the specific requirements and maximize the advantages offered by these incentives.
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