R&D tax incentives in China

April 17, 2023

R&D tax incentives in China have been made a permanent policy by China’s State Council. This month (March 2023) they announced the extension of supportive tax and fee policies that are aimed at incentivising innovation and supporting industries that were affected by the COVID-19 pandemic. These policies are expected to reduce the annual tax and fee burden on eligible companies by over RMB 480 billion, which is approximately US$69.8 billion.

Tax deductions for R&D

One of the multiple policies that have been extended in the announcement is the tax deduction for research and development (R&D) expenses. The pre-tax deduction ratio of R&D expenses for certain eligible companies will continue to increase from 75% to 100%, with no expiration date specified. This policy was previously only available to manufacturing enterprises, but the 2022 Government Work Report expanded it to include technology-based small- and medium-sized enterprises (TSMEs) to encourage innovation.

In September 2022, the Ministry of Finance (MOF), State Taxation Administration (STA), and the Ministry of Science and Technology (MOST) temporarily expanded the policy of super deduction of R&D expenses to general enterprises. During the period from October 1, 2022 to December 31, 2022, the ratio for the additional pre-tax deduction for R&D expenses for enterprises that were already eligible was raised from 75% to 100%

The State Council has now announced that this temporary expansion will become a long-term policy, demonstrating the government’s eagerness to support tech innovation. The extended policy will provide more support to eligible companies and encourage them to invest in R&D, which will boost innovation and ultimately drive economic growth.

China’s renewed tax and fee policies are expected to provide much-needed support to industries affected by the pandemic and incentivize innovation through the extension of R&D tax incentives. This is a positive step towards boosting economic growth and ensuring the country’s long-term competitiveness in the global market.

If you would like to learn more about taking advantage of the R&D tax incentives in China, get in touch or read more about tax developments in China here.