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State Council: the Ratio of Extra Tax Deductions on Manufacture Enterprises’ R&D Costs Raised to 100%

2021-3-31 10:44:31

On March 24, Premier Li Keqiang chaired an executive meeting of the State Council for the implementation of policies such as increasing the extra tax deductions on the research and development expenses of manufacturing firms in order to incentivize business innovation and advance industrial upgrading. In addition, the meeting decided to further extend the policy of deferring capital repayment on loans for small and medium-sized enterprises and the credit loan support program to the end of the year, and adopted the Vocational Education Law of the People's Republic of China (Revised Draft).

At the meeting, it was pointed out that, in accordance with the instructions of CPC Central Committee and the State Council, the government will give better play to the role as the key player of innovation of enterprises, make better use of the market-based, fair and inclusive policy incentives, motivate enterprises and the society to increase R&D investment, enhance economic development, and promote the optimization of economic structure. In recent years, the tax incentive based on R&D expenses has been increasing, which has strongly promoted the innovation of enterprises. To implement the tasks outlined in the Government Work Report in support of business innovation, the ratio of extra tax deductions on enterprises' R&D costs have been raised from 75 percent to 100 percent, starting from Jan 1 this year. This means that for every 1 million yuan ($150,000) spent on R&D, a company will see 2 million yuan deducted from its taxable income. This policy is expected to reduce corporate taxes by another 80 billion yuan this year, on top of the 360 billion yuan tax cuts last year. In addition, the calculation method in the tax deduction of R&D costs will be reformed. Enterprises may choose to benefit from the tax incentive on a semiannual basis, allowing R&D spending in the first half of the year to be deducted during the prepayment of corporate income tax in October, rather than during its settlement in the next year. The reform aims to let enterprises benefit as early as possible. Preferential tax policies will also be considered for R&D service providers, innovative firms and business startups. Efforts will be made to strengthen policy advocacy, improve tax services and streamline review processes, to make it easier for enterprises to benefit and see that the policies are effectively implemented.

Prof. Li Xuhong, director of Fiscal & Tax Policy and Application Research Institute of Beijing National Accounting Institute (BNAI), told the Economic Information Daily that the policies of increasing tax deduction for R&D costs from 75 percent to 100 percent and allowing enterprises to choose to benefit from tax deductions on a half-year basis, gave them actual support to promote innovation.

Prof. Li believes enterprises are one of the major players of innovation, and the series of preferential policies on R&D expenses will certainly yield great results. On the one hand, they can help save R&D costs and encourage enterprises to engage in innovative activities, which will generate further impetus to the development of China’s manufacturing industry and the transformation and upgrading of its industrial structure, and is of great significance to further promote high-quality economic development. On the other hand, the uncertainty of the world economy under the Covid-19 pandemic has been significantly enhanced, and such tax incentives will help promote the construction of a new development pattern in China and better cope with the uncertainties of the world economy.

(Source: CCPIT)

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