Q:
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What are the changes in the new policy on additional deductions for R&D expenses in manufacturing industries?
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A:
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According to the original policy, enterprises are allowed to additional deduct 75% of actually incurred R&D expenses before tax. The new one rises the proportion of additional deduction from 75% to 100% for R&D expenses in manufacturing industries, which is further support the manufacturing enterprises and encourage them to invest more in R&D.
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Q:
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How to calculate the additional deduction for R&D expenses in manufacturing industries?
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A:
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According to whether intangible assets are formed or not, the R&D expenses actually incurred by manufacturing enterprises shall be classified into expenditure and capitalization. If intangible assets are not formed, the R&D expenses, which should be accounted into current profits and losses, are allowed 100% additional deducting before tax as of 1st Jan 2021. Otherwise, they should be pre-tax amortized base on 200% of intangible assets cost from 1st Jan 2021.
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Q:
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The beneficiary group of new R&D expense preferential policy is mainly manufacturing enterprises. How to define the scope of manufacturing industry?
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A:
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According to Notice on Further Improving Policies of Pre-tax Additional Deduction for R&D Expenses [2021 No.13] by Ministry of Finance and State Taxation Administration, the scope of manufacturing industry is determined in accordance with Industry Classification of National Economy (GB/T4574-2017). Future provision should be followed if relevant department update the GB/T4574-2017.
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Q:
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Can R&D expenses incurred in diversified company be 100% deducted before tax?
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A:
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If a company has diversified business, the R&D expenses shall be defined based on income index to determine whether it belongs to a manufacturing enterprise. During the period of preferential policy applied, an enterprise can 100% additional deduct the R&D expense if its current main business income accounting for more than 50% of the total revenue.
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Q:
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How to calculate the gross income of a diversified enterprise when judging if it meets the criteria of manufacturing industry?
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A:
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According to Article 6 of Enterprises Income Tax Law of China, gross income specifically refers to various income obtained by an enterprise in monetary and non-monetary form. It includes income from selling goods and providing service, transferring property, dividend and other equity investment, interest, rental, royalty, receiving donations and other income.
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