Where the R&D expenses actually incurred by an enterprise when it conducts any R&D activity have not been included in the current loss and profit as intangible assets, another 50% of the amount of R&D expenses actually incurred in this year shall be deducted from the amount of taxable income in this year in addition to the deduction as prescribed to the extent of the amount actually incurred. Where any intangible assets are formed, 150% of the costs of the intangible assets shall be amortized before tax payment. The specific scope of R&D expenses shall include:

(1)     Labor charges  

The salaries and wages, basic pension insurance premiums, basic medical care insurance premiums, unemployment insurance expenses, industrial injury insurance premiums, maternity insurance premiums, housing provident funds, and labor costs of externally employed R&D personnel.

(2)     Directly invested expenses

(a)	The material, fuel and power expenses directly consumed in R&D activities.
(b)	The expenses for the development and production of moulds  and technical equipment used for intermediate experiments and trial production of products, and the expenses incurred from the purchase of samples, prototype machines and general testing means that do not constitute fixed assets, and the inspection fees of products produced on a trial basis.
(c)	The  expenses  used for the   maintenance,   adjustment,   inspection,   and repair,  etc.,  of instruments and equipment for R&D activities, and instrument and equipment rental expenses for R&D activities leased by means of operational lease.

(3)      Depreciation expenses.

Depreciation costs of instruments and equipment for R&D activities.

(4)      Amortization of intangible assets

The amortized expenses of the software, patent rights and non-patented technologies (including licenses, proprietary technologies, designs and calculation methods, etc.) for R&D activities.

 

(5)	Expenses  for designs of new products,  expenses for  developing  new technical procedures, clinical trial expenses for the research and manufacture of new drugs, and expenses for on-the-spot experiments for exploration and development technologies.

(6)     Other related expenses

There are other expenses directly related to the R&D activities, such as technical books and materials fees; materials translation fees; expert consultation fees; high tech R&D insurance premium; expenses of retrieval, analysis, evaluation, demonstration, identification, evaluation, evaluation and acceptance check of R & D achievements; intellectual property application fees, registration fees, agency fees, travel expenses, conference fees, etc. The total amount of such expenses shall not exceed 10% of the total R & D expenses that can be deducted.

The relevant expenses incurred by an enterprise in carrying out creative design activities in order to obtain innovative, creative and breakthrough products can be added and deducted according to regulations.  

Creative design activities refer to the development of multimedia software, animation game software, digital animation, game design and production; housing construction engineering design (green building evaluation standard is three-star), landscape engineering design; industrial design, multimedia design, animation and derivatives design, model design, etc.

R&D personnel are divided into three categories: researchers, technicians and supporting personnel. R&D personnel can be employees of the enterprise or external R&D personnel. “Externally employed R&D personnel” means the researchers, technicians and auxiliary personnel who have concluded a labor and employment agreement (contract) with or are temporarily employed by these enterprises or labor dispatch enterprises.

The wages and salaries and other expenses actually paid by labor dispatch enterprises to externally employed R&D personnel out of those paid by the enterprises that accept the labor dispatch services to labor dispatch enterprises as agreed on in the agreements (contracts) fall within the scope of the labor costs of externally employed R&D personnel.

There are six industries which are not applicable to the policy of weighted deduction of R&D expenses: tobacco manufacturing, accommodation and catering, wholesale and retail, real estate, leasing and business services and entertainment.

The enterprises within the six industries are specifically defined as  those enterprises whose main business activity is within the aforesaid six industries, and the income derived from main business activity accounts for more than 50% of  total gross income deducting tax exempt income and investment income in the year that R&D expenses occur.

When determining the main business activity,  all income derived from businesses not applicable to the weighted deduction of R&D expenses policy should be accounted for.

Total income shall be calculated according to the taxation law. The investment income which shall be deducted from total income includes dividends and other equity invested income stipulated by the law and income from equity transfer.

“R&D activities” means the on-going systematic activities with definite objectives conducted by enterprises for the purpose of acquiring new knowledge on science and technology, creatively applying new scientific and technological knowledge, or materially improving technologies, products (services) and techniques. In accordance with the definition of R&D activities, where enterprises conduct the following general intellectual and technical activities which are not the “R&D” activities in terms of taxation, thus those expenses are not applicable to the policy of weighted deduction of R&D expenses.

(1)	Routine upgrade of products (services);
(2)	Direct application for research  achievements, for example,  direct adoption of new technology, material, device, product, service or knowledge which have been already disclosed;
(3)	Technical supporting activities for customers after commercialization;
(4)	Repetitive or simply changes for existing product, service, technology, material or technological process;
(5)	Market research, efficiency survey or management study;
(6)	A part of industrial process or regular quality control, testing analysis and maintenance;
(7)	Studies on social science, art or humanities.