The Ministry of Finance and the State Administration of Taxation have recently introduced a series of tax policies to provide fiscal advantages to financial institutions supporting Small and Micro Enterprises and companies investing in R&D. The first policy grants an exemption from value-added tax (VAT) in China on interest income generated from such loans provided by financial institutions. The second supports research and development (R&D) through a super tax deductions policy, offering a degree of flexibility to firms based on their unique needs. 

R&D Expense Deduction Policy 

The super deduction policy for research and development (R&D) expenses has undergone continuous improvement and expansion in recent years. This policy has been characterized by increasing strength, gradual expansion, and steady progress. It plays a crucial role in supporting businesses to invest in R&D and promoting scientific and technological innovation. To facilitate taxpayers' comprehensive understanding of the relevant policies and regulations, a "Series of Illustrations on the Super Deduction Policy for R&D Expenses" has been created by the State Taxation Administration of China.

Prepayment Declaration Enjoyment

Enterprises, during their prepayment declaration in July (for the second quarter) or in June (for monthly prepayment), can precisely record and compute their R&D expenses. They retain the autonomy to decide, considering their specific production and business conditions, whether to utilize the R&D costs deduction policy for the first half of the year. Should firms abstain from this option during the July prepayment declaration, they still maintain the freedom to subsequently embrace the policy.

When companies submit their prepayment declaration for the third quarter (quarterly prepayment) in October or for September (monthly prepayment) corporate income tax, and they can accurately account for and calculate R&D expenses, the enterprise can choose, based on its business needs, to independently enjoy the super deduction policy for R&D costs incurred in the first three quarters of the year. For enterprises that did not choose to enjoy the benefits during the prepayment declaration in October, they can independently choose to enjoy the policy when they accurately calculate their expenses.

Enjoyment Through Consolidated Declaration

Firms that can accurately account for and calculate R&D expenses during the annual settlement and payment can choose to enjoy the super deduction policy for R&D costs incurred in the same year.

In conclusion, the Chinese government has implemented a series of measures to provide fiscal advantages to financial institutions supporting Small and Micro Enterprises, such as VAT exemptions on interest income from small loans to these firms. Moreover, the government has also promoted research and development (R&D) through a super deduction policy, facilitating businesses to invest in R&D and promoting scientific and technological innovation. These policies are part of the government's ongoing efforts to support small enterprises and innovation, and they offer multiple options for businesses to take advantage of the incentives, based on their specific needs and circumstances.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face in China. If you would like to know more about policies relevant to your business in China, please contact us at info@phcadvisory.com.

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PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

Disclaimer

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not create any legal obligations between PHC Advisory and the reader. 

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