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06 December 2017

China expands scope of qualifying R&D expense for super deduction

On 8 November 2017, China's State Administration of Taxation (the SAT) released Public Notice [2017] No. 40 (PN 40) to expand the scope of qualifying research and development (R&D) expenses eligible for a super deduction and to clarify certain related issues. The super deduction means an additional 50% deduction of the actual R&D expenses.

Pursuant to PN 40, the expanded scope of qualifying R&D expenses includes the following:

  • Equity incentives1 granted to R&D personnel
  • Personnel expenses such as salaries and wages included in a payment made to contract a human resource agent that loans R&D personnel
  • Employee welfare expenses, supplementary pension funds and supplementary medical insurance premiums
  • R&D expense incurred for "failed" projects

PN 40 also clarifies that for outsourced R&D projects, the R&D expenses of the principal and not the subcontractor will be eligible for the super deduction.

PN 40 applies to annual corporate income tax returns for taxable years beginning in 2017. PN 40 is also applicable to any new and pending cases to which retroactive preferential tax treatment is available.

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ENDNOTE

1 Equity incentives may include stock options, stock purchase plan, stock appreciation rights and any other similar incentives.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong

  • Jane Hui
    jane.hui@hk.ey.com
  • Becky Lai
    becky.lai@hk.ey.com

Ernst & Young Ernst & Young (China) Advisory Limited, Shanghai

  • Walter Tong
    walter.tong@cn.ey.com
  • Vickie Tan
    vickie.tan@cn.ey.com

Ernst & Young Ernst & Young (China) Advisory Limited, Beijing

  • Henry Chan
    henry.chan@cn.ey.com
  • Martin Ngai
    martin.ngai@cn.ey.com
  • Andrew Choy
    andrew.choy@cn.ey.com

Ernst & Young Ernst & Young (China) Advisory Limited, Shenzhen

  • Clement Yuen
    clement.yuen@cn.ey.com

Ernst & Young LLP, China Tax Desk, New York

  • Min Fei
    min.fei@ey.com
  • Andrea Yue
    andrea.yue1@ey.com
  • Vickie Lin
    vickie.lin@ey.com
  • Claire Geng
    claire.geng1@ey.com

Ernst & Young LLP, China Tax Desk, San Jose

  • Diana Wu
    diana.wu@ey.com

Ernst & Young LLP, China Tax Desk, Chicago

  • Ally Liu
    ally.liu@ey.com

Ernst & Young LLP, Asia Pacific Business Group, New York

  • Chris Finnerty
    chris.finnerty@ey.com
  • Kaz Parsch
    kazuyo.parsch@ey.com
  • Bee-Khun Yap
    bee-khun.yap@ey.com

Ernst & Young LLP, Asia Pacific Business Group, Houston

  • Trang Martin
    trang.martin@ey.com

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ATTACHMENT

PDF version of this Tax Alert

Document ID: 2017-5010

 
 

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