Caishui No. 47, 2011
According to relevant stipulations of Enterprise Tax Law of People’s Republic of China and its Implementation Regulations, and Notice of the Ministry of Finance and the State Administration of Taxation on Issues Concerning the Foreign Income Tax Credit of Enterprises, caishui No. 125, 2009, applicable tax rate and tax deduction issues of high and new technology enterprises (high-tech enterprises) are further clarified as follows:
I. For high-tech enterprises applied and determined under standards of total research and development fee, total incomes, total sale amount, high-tech product (service) incomes, etc. relating to both overseas and domestic business and production activity, the overseas incomes can subject to high-tech tax preferences of the 15% low rate of EIT, calculation of deduction limit may follow the total amount of both overseas and domestic incomes upon 15% rate.
II. Other Issues of overseas income deduction of said high-tech enterprises shall still follow the contents of Caishui No.125, 2009.
III. High-tech enterprises in THIS NOTICE refer to companies with the high-tech enterprise certification and enjoying the Reduced CIT rate of 15% approved by determination organization according to The Administrative Measures for Assessment of New/High Tech Enterprises, Guokefahuo No.172, 2008, and Working Guidelines for the Administration of Assessment of New/High Tech Enterprises, Guokefahuo No.362, 2008, under the Enterprise Tax Law of People’s Republic of China and its Implementation Regulations.
According to EIT and its implementation regulations, where research and development expenses are incurred during the development of new technologies, new products or new production techniques, the super-deduction for research and development expenses refers to, if the expenses are not capitalized as intangible assets but are charged to the income statement of the current period, a 50% super-deduction that is allowable in addition to the actual expense deduction; if the expenditures are capitalized as intangible assets, cost bases of the intangible assets equal to 150% of actual costs are allowable for amortization purposes.
To high-tech enterprises, R&D expenses super-deduction makes enterprises deduct R&D expenses after enjoying 15% EIT rate in order to save taxes. Loss after R&D expenses super-deduction of high-tech enterprises is exempted from EIT, and could be covered by profit of next year so that reduce enterprise’ long-term tax burden. To high-tech enterprises going to public, high-tech qualification seems more crucial. High-tech qualification belongs to intangible asset, which promotes enterprises to go to public greatly. After High-tech Enterprises Recognition Measures issues, China enhance high-tech enterprises management constantly. General Accounting Office, Ministry of Finance and Ministry of Science and Technology cancelled abundant of high-tech enterprises through high-tech reexamines, selective examinations, and inspections, high-tech recognition and management becomes more serious. To cope with the above inspections and maintain high-tech qualification, enterprises should collect R&D expenses seriously according to relevant requirements during daily financial account. Due to the scope of super-deduction R&D expenses is greatly coincident with that of high-tech enterprises, R&D super-deduction is equivalent of ensuring current R&D expenses through tax authorities’ confirmation. Therefore, when high-tech reexamine, enterprises’ R&D expenses ratio is easier to be accepted by high-tech recognition organizations, which is vital to the high-tech qualification maintenance and reexamine.
Enterprise income tax calculation and settlement of 2010 has been launched. According to relevant regulations, R&D expenses super-deduction materials should be submit together with EIT filing documentations. If the declaratory R&D expenses are not true or there is irregularity in application materials, enterprises shouldn’t enjoy super-deduction policy and tax authorities are entitled to make reasonable adjustment. Therefore, Hwuason law firm suggest high-tech enterprises make the best application on R&D expenses super-deduction, submit materials before May 31 2011 (Hwuason suggest March 15 is suitable), and ensure the authenticity of the declaratory R&D expenses and the integrality of application materials.
According to Relevant provisions of Enterprise Income Tax Law of the People’s Republic of China, Regulation on the Implementation of the Enterprise Income Tax Law of the People’s Republic of China, Notice of the Ministry of Science and Technology, Ministry of Finance and SAT on Issuing the Administrative Measures for Determination of High and New Tech Enterprises, Guokefahuo No. 172, 2008, Circular of SAT on issues of Implementing Enterprise Income Tax Preferential Policies of High-tech Enterprises, Guoshuihan No. 203, 2009, Prepay of enterprise income tax before Official Notice of high and new tech enterprises qualification reexamination are hereby noticed as follows:
High and new tech enterprises should file reexamination application in 3 months before expiration date, and before approval of the reexamination, shall temporarily prepay the enterprise income tax at the rate of 15% in its effective period of the high and new tech enterprises certificate.
This Notice shall be put into effect from February 1, 2011.
January 10, 2011