(Promulgated by the State Administration of Taxation on September 17, 1999)
All State taxation bureaus of provinces, autonomous regions, municipalities directly under the Central Government and cities separately listed on the State plan, and the local taxation bureau of Shenzhen city:
Recently, the state Council has decided that , with approval of the tax authorities, the enterprises with foreign investment are allowed again to deduct 50% of the amount of their technology development expense actually occurred in a year from their taxable income in the said year if their technology development expense has increased more than 10% (including 10%) over that in the preceding year. Relevant issues concerning the implementation of this tax preference policy are hereby notified as follows:
I. With examination and approval of the tax authorities, the enterprises are allowed again to deduct 50% of the amount of their technology development expense actually occurred in a year from their taxable income in the said year if their technology development expense in the said year occurred within the territory of China for their technology development has increased actually more than 10% (including 10%) over that in the preceding year. The specific period of application, examination and approval procedures and powers of examination and approval shall be formulated by the competent tax authorities at the level of province (autonomous region, municipality directly under the Central Government or city separately listed on the State plan) in accordance with the provisions of relevant tax laws and regulations and this Circular and in combination of the actual conditions of their respective areas, and shall be reported to the State Administration of Taxation for the record.
The technology development expense to which the provisions of the preceding paragraph are applicable shall include: new product design costs, technical standard formulation expense, equipment testing expense, experimental expenses of raw materials and semi-finished products, technical books and materials expenses, intermediary laboratory expenses not included in the State plan, wages for persons of research organizations, depreciation casts of research equipment and other expenses related to the experiment of new products and technology research, which are occurred in a tax year to the enterprises for the research and development of new products, new technologies and new technical process; it shall not include the purchase costs or royalty paid by the enterprises for purchasing technologies or for acquiring the right to use technologies from other units, as well as the operating costs and expenses related to technology development services occurred to the enterprises engaging in technology development services.
II. If the technology development expense of an enterprise has increased more than 10% over that in the preceding year and 50% of the amount actually occurred is bigger than its taxable income in the year, it may be allowed to deduct the amount not in excess of its taxable income; and the amount in excess may not be deducted in the current year or in the following years.
If an enterprise does not have the taxable income in the current year after making up its loss in the previous years according to the provisions of Article 11 of the Income Tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises, the provisions of paragraph 1 of this Article shall not be applicable to its technology development expense occurred.
III. The technology development expense occurred in production and business activities carried out by the establishments and sites set up in China by the foreign enterprises shall be governed by applying mutates mutandis the provision of this Circular. IV. This Circular shall go into effect as of January 1,2000.
