Which are allowed to be included in the R D expenses for additional deductions

According to the Ministry of Finance, the State Administration of Taxation and the Ministry of Science and Technology jointly issued on November 2, 2015, Cai Shui [2015] No. 119: "Improving the Policy of Pre-tax Deduction of Research and Development Expenses".

The R&D activities mentioned in this notice refer to the systematic activities with clear objectives that enterprises continue to carry out in order to obtain new scientific and technological knowledge, creatively apply new scientific and technological knowledge, or substantially improve technologies, products (services) and processes.

If the R&D expenses actually incurred by the enterprise in carrying out R&D activities are not included in the profit or loss of the current period as intangible assets, they shall be deducted from the taxable income of the current year according to 50% of the actual amount incurred in the current year on the basis of deduction according to the regulations; If an intangible asset is formed, it shall be amortized before tax at 150% of the cost of the intangible asset. The specific scope of allowable R&D expenses includes:

1.Personnel labor costs.

Wages and salaries, basic pension insurance premiums, basic medical insurance premiums, unemployment insurance premiums, work-related injury insurance premiums, maternity insurance premiums and housing provident fund premiums for personnel directly engaged in R&D activities, as well as labor expenses for external R&D personnel.

2.Direct input costs.

1) The cost of materials, fuel, and power directly consumed by R&D activities.

2) The development and manufacturing costs of molds and process equipment used for intermediate tests and product trial production, and the purchase costs of samples, prototypes and general testing methods of fixed assets, and the inspection fees of trial products.

3) Expenses for the operation and maintenance, adjustment, inspection and repair of instruments and equipment used for R&D activities, as well as the rental fees for instruments and equipment leased for R&D activities through operating leases.

3.Depreciation expense.

Depreciation of instruments and equipment used for R&D activities.

4.Amortization of intangible assets.

Amortization expense of software, patent rights, and non-patented technology (including licenses, know-how, designs, and calculation methods) used for R&D activities.

5.New product design fees, new process specification formulation fees, new drug development clinical trial fees, exploration and development technology field test fees.

6.Other related fees.

Other expenses directly related to R&D activities, such as technical library fees, data translation fees, expert consultation fees, high-tech R&D insurance premiums, R&D results retrieval, analysis, evaluation, demonstration, appraisal, review, evaluation, acceptance fees, intellectual property application fees, registration fees, ** fees, travel expenses, conference fees, etc. The total amount of this expense shall not exceed 10% of the total amount of R&D expenses that can be deducted.

7.Other fees as prescribed by the Ministry of Finance and the State Administration of Taxation.

What R&D expenses can be deducted?

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According to the Administrative Measures for the Pre-tax Deduction of R&D Expenses of Enterprises (Trial) (GSF 2008 No. 116) issued by the State Administration of Taxation, when an enterprise applies for additional deduction of R&D expenses, it should meet the following requirements:

First, the scope is compliant.

The R&D activities engaged in by the enterprise must be the R&D activities specified in the "High-tech Fields Supported by the State" and the "Guidelines for the Key Areas of High-tech Industrialization for Current Priority Development (2011)" issued by the National Development and Reform Commission and other departments.

Second, the purpose is compatible.

The R&D activities refer to the R&D activities with clear objectives that enterprises continue to carry out in order to acquire new knowledge of science and technology (excluding humanities and social sciences), creatively apply new knowledge of science and technology, or substantially improve technologies, processes, and products (services).

There are two main ones.

1. Your project should be a first-class R&D project, and the R&D expenses incurred in such a project can be deducted.

2.Financially, these expenses should be accounted for separately, that is, they should be accounted for through the R&D expenditure account.

R&D failures can be deducted. Failure of R & D activities incurred R & D expenses can also enjoy additional deductions, enterprise R & D activities have a certain risk and inadmissibility, both may succeed or scatter can fail, the policy is to encourage R & D activities, not simply emphasize the results.

Article 12 of the Enterprise Income Tax Law shall allow the deduction of the amortization expenses of intangible assets calculated by the enterprise in accordance with the provisions when calculating the taxable income. The following intangible assets are not eligible for amortization expense deduction: (1) Intangible assets whose self-developed expenses have been deducted in the calculation of taxable income; (2) self-created goodwill; (3) Intangible assets unrelated to business activities; (4) Other intangible assets that are not subject to deduction of amortization expenses.