Summary of recent preferential tax policies

To incentivize business innovation and advance industrial upgrading, the Premier Li Keqiang mentioned a series of content closely related to the interests of taxpayers in the government work report on 5th of March, 2021, including extending the implementation period for some tax preferential policies, raising extra tax deduction ratio on manufacturing enterprises’ R&D costs, optimizing advanced manufacturing enterprises VAT tax refunds and optimizing preferential tax policies. Afterwards, Ministry of Finance and the State Administration of Taxation of the People's Republic of China has issued some of the policies mentioned in the meeting. In this newsletter, we will sort out the policies and proposals that are closely related to your daily business.

1. Extending the implementation period for some tax preferential policies

Ministry of Finance, State Taxation Administration [2021] No.6, Announcement on Extending the Implementation Period for Some Tax Preferential Policies, in this announcement, those policies that have expired shall be extended to 31st of Dec. 2023, including:

  1. Enterprises are allowed to count on a lump-sum basis the costs of equipment and appliances that are newly bought into the costs and expenditures of the current period, and deduct such costs in full when calculate the taxable income, provided that the unit value of such equipment and applicants is worth up to CNY5 million
  2. With respect to R&D expenses actually incurred by an enterprise from its R&D activities, an extra 75% of the actual amount of expenses is deductible before tax, in addition to other actual deductions, provided that the said expenses are not converted into the intangible asset and balanced into this enterprise's current gains and losses; if the said expenses have been converted into the intangible asset, such expenses may be amortized at a rate of 175% of the intangible asset's costs before tax.

2. Raising extra tax deduction ratio on manufacturing enterprises’ R&D costs

Ministry of Finance, State Taxation Administration [2021] No.13, Announcement on Further Improving the Policy on Extra Pre-tax Deduction of R&D Expenses, with respect to R&D costs actually incurred by a manufacturing enterprise from its R&D activities, in addition to the actual amount deductions, an extra 100% deduction is allowed to deducted before tax if those costs are not converted into intangible assets and balanced into this enterprise's current gains and losses. And if those costs have been converted into intangible assets, such costs shall be amortized at a rate of 200% of the intangible asset's costs before tax. This policy took effect from 1st of Jan, 2021.

Along with the raised deduction ratio, announcement also revised the calculation method. Enterprises can choose to make extra deduction for the first half year when declare the 3rd quarter(or September). That is, R&D expenses for the first half of the year can be deducted in October instead of next year, so that enterprises can benefit early.

3. Optimizing advanced manufacturing enterprises VAT tax refunds

Starting from 1st of Apr, nine industries including non-metallic mineral products, general equipment, special equipment, computer communications and other electronic equipment, transportation equipment, electrical machinery, instrumentation, medicine, and chemical fiber will be included in the advanced manufacturing industry, which can enjoy the VAT tax refund policy, and relax conditions to enjoy, fully refund the incremental VAT tax refund on a monthly basis.

4. Optimizing preferential tax policies.

Starting from 1st of Jan, the portion of less than RMB 1 million of annual tax income for small and low-profit enterprises, the income tax will be halved on the basis of current preferential policies. The current comprehensive tax ratio for this part of taxable income is 5%, with the implementation of this policy, the actual ratio will be reduced to 2.5%.

If you have any questions, please don’t hesitate and contact us, bdp accounting and tax team will give you detail explanation and provide customized services.