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08 October 2018

China expands R&D super deduction rate to all enterprises

China’s Ministry of Finance, State Administration of Taxation and Ministry of Science and Technology jointly released Caishui [2018] No. 99 (Circular 99)1 to expand the 175% research and development (R&D) super deduction rate to all enterprises. Circular 99 becomes retroactively effective on 1 January 2018.

Before the issuance of Circular 99, only technology-based small and medium-sized enterprises in China were allowed to claim a 175% super deduction on eligible R&D expenses actually incurred in the course of R&D activities. For all other Chinese enterprises, the R&D super deduction claim was limited to 150%.

Circular 99 expands the applicability of the 175% R&D super deduction rate to all other Chinese enterprises2 for the period from 1 January 2018 to 31 December 2020.

Circular 99 reflects China’s support of innovation and R&D activities. Multinational companies are encouraged to review the scope of qualified R&D expenses and maximize the tax benefits during this period.

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ENDNOTES

1 Circular 99 was issued on 20 September 2018.

2 See Caishui [2015] No. 119, Caishui [2008] No. 64 and SAT PN [2015] No. 97 for detailed guidance related to the scope of qualified R&D expenses.

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Ernst & Young LLP, China Tax Desk, New York

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