China alert Tax and regulatory developments TAX
Background
Article 30 of the new CIT Law and Article 95 of the Implementation Rules state that if R&D expens are incurred for the development of new technology, products and techniques which have not been capitalid as intangible asts, an additional 50% deduction can be claimed for CIT purpos. If the expens have been capitalid as intangible asts, 150% of the intangible asts’ cost could be amortized for CIT purpos. Main contents of Circular 116
Circular 116 stipulates the relevant conditions and scope of qualified R&D expens for additional deduction, and allows R&D expens to be allocated within group companies. Its key points are as follows: • Conditions for qualified R&D expens
− R&D activities shall fall within the categories listed in High and
New Technology Areas with Key Support by the State and Guidance for Development of Prioritid Key Areas of High Technology Industries (2007 edition).
− R&D expens should be incurred for continuous R&D activities
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with the explicit objective of acquiring new knowledge of science and technology (excluding humanities and social science). Excluded R&D expens also cover tho incurred for regular upgrading activities on products/rvices or the direct implementation of existing R&D results (for example, direct usage of new techniques, raw materials, devices, products, rvices and knowledge that are publicly available).
R&D expens deduction for Corporate Income Tax Issue 53, December 2008 In Brief • The State Administration of Taxation issued Guoshuifa [2008] No. 116 (Circular 116), effective 1 January 2008, which clarifies the treatment for claiming additional deductions of rearch and development (R&D) expens for Corporate Income Tax (CIT) purpos. Relevant regulation discusd in this issue: Administrative Measures of R&D Expens Deduction for CIT Purpos (Trial), Guoshuifa [2008] No.116, issued by the State Administration of Taxation on 10 December 2008
−Enterpris should accurately classify and record the relevant R&D expens.
try的用法•Detailed scope of deductible R&D expens
−There are eight kinds of expens which can be classified as R&D expens for additional deduction.
−Tho expens not deductible for CIT purpos prescribed by other regulations cannot be recorded as R&D expens.繁密
•Additional deduction for development projects consigned to third parties
−An additional deduction could be claimed by the consigners, subject to the satisfaction of the abovementioned conditions.
Consignees cannot re-apply for additional deductions.
•Allocation and additional deduction of R&D expens within group companies
−For centrally developed R&D projects, reasonable allocation methods can be ud to allocate R&D expens to enterpris
within the group for additional CIT deductions, subject to the
satisfaction of the abovementioned conditions.
•Applicable period for additional deduction of R&D expens
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−An additional deduction of R&D expens is only applicable at the time of the annual CIT filing. The actual amounts of R&D
expens incurred should be ud for quarterly CIT filings.
•Tax disputes
−Tax authorities are empowered to adjust R&D expens and the additional deduction for CIT purpos.
life is cool−Certification issued by the relevant technology authorities would need to be submitted if tax authorities disagree on the R&D
projects reported by enterpris.
−If tax authorities disagree on the allocation method and amounts of R&D expens allocated among group companies, the
relevant tax authorities at central or provincial levels can issue
comments through arbitration.
KPMG obrvation
Circular 116 stipulates the detailed scope for the classification and recording of R&D expens for CIT purpos. In particular, it lists the relevant materials and documents to be lodged with tax authorities by enterpris, for the allocation of R&D expens among group
companies as well as tho incurred via consignment arrangements. Compared with past practice, there are now stricter requirements for enterpris to follow. Enterpris should accurately classify and record R&D expens incurred during 2008 in accordance with the requirements of Circular 116 and ensure the completeness of the relevant documents. By Anthony Chau, Partner and Wayne Tan, Manager All issues of China alert are accessible on or hk Contact us
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