Research and Development (“R&D”) costs items can be deducted before tax with further 50% amount according to the prevailing PRC tax law. These items are clarified on 29 September 2013 and became retrospectively effective since 1 January 2013. These costs comprise:
1) The statutory basic pension insurance, basic medical insurance, unemployment insurance, work-related injury insurance, maternity insurance and housing fund paid for the R&D;
2) Costs of operation and maintenance, adjustment, testing and repair for instruments and equipments used exclusively for research and development activities;
3) Purchase costs for samples, prototypes and testing that are not recorded as fixed assets;
4) Costs of clinical trials for drugs;
5) Appraisal fees of the R&D deliverables.
To make the above R&D costs further deductible, enterprises can hire qualified Chinese Certified Tax Agent to issue a special audit report for the R&D further-50% deduction.
Lee & Lee Associates Insights: Companies with R&D costs should adjust the accounts accordingly by the end of 2013 to take good advantage of this privileged policy and also make sure that the report issued by the CCTAs are presented in line with the accounts to avoid challenges by state tax authority.
