Pre-tax additional deduction for R&D expenses.

In the last two years, the Chinese government implemented various measures to encourage companies to engage in R&D activities. Among these measures, the Pre-Tax Additional Deduction for Research and Development Expenses Policy is the most important.

The Pre-Tax Additional Deduction for Research and Development Expenses Policy is a policy that allows an enterprise to deduct additional R&D expenses on top of the actual expenses incurred when calculating taxable profits. Currently, the additional deduction rate is 75% (the said expenses are not converted into intangible assets) and 175% (the said expenses have been converted into intangible assets) for most companies. The rates for manufacturing enterprises and small and medium sci-tech enterprises are as high as 100% and 200%, respectively.