State Administration of Taxation to Release Detailed Measures for Reduction of R&D Costs from Enterprises' Taxable Income for Income Tax Purposes
On December 10, 2008, the State Administration of Taxation released the Interim Measures for Administration of Before-Tax Deduction of Enterprises' Research and Development Expenses, effective retroactively on January 1, 2008 (the "Measures"). Pursuant to the newly-promulgated Enterprise Income Tax Law of the PRC and its Implementing Regulations, an enterprise's R&D expenses incurred in developing new technologies and products may be deducted from such enterprise's taxable income for income tax purposes. According to the Measures, enterprises may only deduct qualified expenses for R&D activities expressly listed in the Measures, and only for the projects falling within the Catalogue of High and New Technology Areas Emphasizedly Supported by the State and the Guidelines on the Important Areas of High Technology Industrialization Currently Given Priority to Develop. For R&D activities producing no intangible assets, 150% of the R&D expenses may be deducted from the taxable income of that year; for R&D activities producing intangible assets, 150% of the intangible assets' costs may be amortized before the payment of taxes for a period of no fewer than ten years. Procedures for applying for the R&D expense deduction are laid out in the Measures. The purpose of the issuance of the Measures is to ensure the correct implementation of the new Enterprise Income Tax Law and its Implementing Rules.
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