The Ministry of Finance, the State Administration of Taxation, and the Ministry of Science and Technology in China jointly issued a Circular (Cai Shui  No.64), announcing a broader scope of expenses entitled to the super-deduction incentive for corporate income tax purpose. The Circular come into force with retroactive effect on January 1, 2018, with Art.2 under Circular Cai Shui  No.119 expired simultaneously.
The Circular provides that for expenses arisen from contract R&D activities accrued overseas, the principal company may record 80% of the actual amount incurred into its overseas R&D expenses for contract activities. The principal enterprise may super-deduct its overseas R&D expenses for contract activities to the extent that such expenses do not excess two third of the enterprise’s qualified expenses accrued domestically for corporate income tax purpose. To be noted, super-deduction rules under this Circular do not apply to expenses accrued from activities committed to foreign individuals. The super-deduction rate applied is either 150% or 175% based on industry and size of the principal enterprise.
The Chinese competent authority has been increasingly emphasised innovation during past decades. There are mainly four types of tax incentives to encourage local R&D activities:
Source: SAT (CN)
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