October 2023 / China

October 1 2023

China Raises Additional Deduction Proportion of R&D Expenses for IC Enterprises and Industrial Machine Tool Enterprises to 120%

Four authorities including the Ministry of Finance released the Announcement on Raising the Additional Deduction Proportion of R&D Expenses for Integrated Circuit Enterprises and Industrial Machine Tool Enterprises, with retroactive effect on January 1, 2023.

For actual R&D expenses incurred by integrated circuit ("IC") enterprises and industrial machine tool enterprises in their R&D activities, if they have not generated intangible assets or included the same in the current profits and losses, the expenses can be deducted before tax as per 120 percent of the actually incurred costs during the period from January 1, 2023 to December 31, 2027 on the basis of the actual deduction. In the case that they have generated intangible assets, the expenses can be amortized before tax as per 220 percent of the costs of the intangible assets during the said period, said the Announcement, which also clarifies the scopes of IC enterprises and industrial machine tool enterprises, requiring implementation of the relevant provisions of the MOF and STA No.119 (2015) and MOF and STA No.64 (2018) documents for other policy requirements.

October 1 2023

China Extends VAT Add-up Deduction Policy to Advanced Manufacturing Enterprises

The Ministry of Finance ("MOF") released the Announcement on the Policy for Add-up Deductions of Value-added Tax ("VAT") for Advanced Manufacturing Enterprises, with retroactive effect from January 1, 2023.

According to the document, advanced manufacturing enterprises are eligible for add-up deductions of their payable VAT at 5% of their deductible input VAT during the period from January 1, 2023 to December 31, 2027. For the purpose of the document, advanced manufacturing enterprises refer to manufacturing general taxpayers among high-tech enterprises (including their affiliated unincorporated branches). High-tech enterprises are recognized in accordance with the Guo Ke Fa Huo (2016) No.32 rules, while the list of advanced manufacturing enterprises is determined by the relevant authorities.

It is further clarified that input VAT that cannot be deducted from output VAT under current rules shall not be accrued for add-up deductions, and for input VAT that has been accrued for add-up deductions, the add-up VAT shall be lowered accordingly in the transfer-out period of the input VAT.

October 4 2023

China Raises Three Thresholds for Additional Deductions in Individual Income Tax

The Chinese government released on its website the Circular of the State Council on Raising Some Thresholds for Additional Deductions in Individual Income Tax, deciding to raise three thresholds for additional deductions in individual income tax with effect from January 1, 2023.

First, it raises the threshold for special additional deductions in individual income tax for taking care of children under age 3 from 1,000 yuan to 2,000 yuan monthly.

Second, it raises the threshold for special additional deductions for education of each child from 1,000 yuan to 2,000 yuan monthly.

Third, it raises the threshold for special additional deductions for taking care of the elderly from 2,000 yuan to 3,000 yuan monthly. Specifically, if the applicant is the only child who care the elderly, an amount of 3,000 yuan can be deducted on a monthly basis. If the applicant has siblings, a monthly deduction quota of 3,000 should be allocated among the siblings and capped at 1,500 yuan for each person.

 
October 2 2023

China Continues Favorable Tax Policies for Purchase of Equipment and Instruments

The Ministry of Finance ("MOF") and the State Taxation Administration ("STA") released the Announcement on Continuing the Policy for Deduction of Corporate Income Tax for Purchase of New Equipment and Instruments, clarifying that the policy will continue to be implemented from January 1, 2024 to December 31, 2027.

According to the Announcement, enterprises that purchase new equipment and instruments worth of no more than 5 million yuan during the period from January 1, 2024 to December 31, 2027 are allowed to include the full purchase cost in the cost and expense for the current period and make one-off deduction in calculation of their taxable income, and depreciation of the cost on a yearly basis will be cancelled. Where the purchase is worth of over 5 million yuan, the pre-tax deduction shall still be subject to the Regulations for the Implementation of the Corporate Income Tax Law, the MOF and STA No.75 (2014) document, and the MOF and STA No.106 (2015) document.

  Source: Announcement of the State Taxation Administration