Tax reduction on R&D to further expand

Wang Jianfan, director of the tax policy department at the Ministry of Finance, at a media briefing held by the State Council Information Office, Oct 23, 2015. [Wang Zhuangfei/China Daily]

The State Council has decided to further expand a tax reduction on companies' research and development expenses, aiming to keep it among the world's highest, as the second largest economy shifts its structure amid a slowdown.

A larger number of companies and R&D-related expenses will qualify for the reduction, as the country plans to introduce a "negative list" and simplify the application procedure for the tax benefits, said Wang Jianfan, director of the tax policy department at the Ministry of Finance, at a media briefing held by the State Council Information Office on Friday.

Under the current law on enterprise income tax, as much as 1.5 times of the R&D fees incurred by companies in the development of new technology, new products and new skills are eligible for the tax exemption.

"The 1.5 times reduction, effective from 2008, put China at a relatively high level globally," Wang said, adding that some countries also gradually raised their tax reduction on R&D.

According to the tax guideline that the State Council approved on Wednesday, R&D expenses incurred in hiring external researchers and consultants and in co-developed projects as well as travel expenses directly involved in the R&D, for the first time will be qualified for the tax reduction.

The tax watchdog will also launch a "negative list", listing only areas that are excluded from tax reduction as in line with international rules, Wang said, adding that under the new rules, companies don't need to file all the application materials, but keep a record instead.

"The tax authority will be in touch with the science and technology department and ask for appraisal," Wang said. The move is expected to enable a wider range of companies to enjoy the tax benefit.

He added that companies can apply for a tax reduction dating back as long as three years ago.

"The regulation will become part of the driving force for economic growth and structural transformation," Wang said.