State Taxation Administration, Operational Guidelines for the Policy of Increasing the Super-Deduction Percentage of Other Research and Development Expenses of Enterprises to 100%

Published: September 27, 2022

Applicability: Enterprises to which the pre-tax super-deduction of research and development expenses at the rate of 75% currently applies. Including: enterprises other than those in industries on the negative list, such as the tobacco manufacturing industry, accommodation and catering industry, wholesale and retail industry, real estate industry, leasing and business services industry, entertainment industry, as well as enterprises other than those in manufacturing or that are small and medium science and technology enterprises and the rate of the pre-tax super-deduction of whose research and development expenses remain at 75% (Section 1).

Main contents: Scope of research and development expenses eligible for pre-tax super-deduction

1. manpower expenses
2. direct outlay expenses
3. depreciation expenses
4. intangible asset amortization expenses
5. new product design expenses, new process protocol formulation expenses, clinical trial expenses for the research and development of new pharmaceuticals, expenses for the field testing of exploration and development technologies
6. other relevant expenses. Means other expenses directly related to research and development activities, such as technical book and documentation expenses, documentation translation fees, expert consultation fees, insurance premiums for research and development of high and new technology; expenses for the search, analysis, evaluation, demonstration, appraisal, review, assessment and acceptance of research and development achievements; intellectual property application fees, registration fees and agency fees; travel expenses and conference expenses; and employee benefit expenses, supplementary old-age insurance premiums and supplementary medical insurance premiums. The total amount of such expenses may not exceed 10% of the total research and development expenses eligible for super-deduction. If an enterprise simultaneously conducts multiple research and development activities in one tax year, the limit of "other relevant expenses" for all of the research and development projects will be calculated together (Section 3.4.1-6).

The expenses incurred when an enterprise commissions a third-party organization or individual in mainland China to conduct research and development activities shall be entered as research and development expenses of the client at 80% of the amount actually incurred and the super-deduction shall be calculated in accordance with provisions; the expenses incurred when an overseas (here and hereafter meaning outside of mainland China) party (excluding individuals located overseas) is commissioned to conduct research and development activities shall be entered as overseas-commissioned research and development expenses of the client at 80% of the amount actually incurred. The portion of the overseas-commissioned research and development expenses that does not exceed two-thirds of qualified domestic research and development expenses may be super-deducted before enterprise income tax in accordance with provisions (Section 3.4.7.1).