In October 2024, China's State Taxation Administration (STA) reminded enterprises of the opportunity to apply for the super deduction of research and development (R&D) expenses incurred during the first three quarters of the year. This initiative aims to encourage innovation by allowing companies to reduce their taxable income through additional deductions on eligible R&D expenditures.
Overview of the Super Deduction Policy
The super deduction policy permits enterprises to deduct an extra 100% of their qualifying R&D expenses from their taxable income, effectively allowing a total deduction of 200% of these expenses. This applies to R&D costs that do not result in the creation of intangible assets and are accounted for as current period expenses. For R&D expenditures leading to intangible assets, the policy allows for amortisation before tax at 200% of the cost.
Eligibility Criteria
To benefit from this policy, enterprises must:
Be a Resident Enterprise: The company should be registered in China and maintain accurate accounting records.
Operate in Eligible Industries: Industries such as tobacco manufacturing, accommodation and catering, wholesale and retail, real estate, leasing and business services, and entertainment are excluded from this incentive.
Application Timeline
Enterprises can apply for the super deduction during the October tax filing period for expenses incurred in the first three quarters. If they choose not to apply at this time, they have the option to do so during the annual corporate income tax settlement, which must be completed by the end of May of the following year.
Application Process
The application process is straightforward:
Self-Assessment: Enterprises assess their eligibility based on the criteria outlined.
Calculation: Determine the amount of qualifying R&D expenses and calculate the additional deduction.
Tax Filing: Apply the deduction during the tax filing period without the need for prior approval from tax authorities.
Strategic Considerations
Accurate Documentation: Maintain detailed records of R&D activities and expenses to substantiate claims.
Timely Application: Applying during the October filing period can provide immediate tax relief, improving cash flow.
Consultation: Engage with tax professionals to ensure compliance and optimise the benefits of the super deduction.
By leveraging the super deduction policy, enterprises can significantly reduce their tax liabilities, thereby freeing up resources for further innovation and development. This initiative underscores China's commitment to fostering a robust environment for research and technological advancement.
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