CMS, China | Chinese Tax Regulation Update | January 2016

CMS, China

Dear Sir or Madam,

Please find enclosed our update on the latest developments in Chinese Tax Law.

Kind regards,
CMS, China

Topic What is new?
Caishui [2015] No.144 2015-12-24 2015-12-24 Stamp duty on financial leasing contracts

The Circular clarifies the stamp duty policy on financial leasing contracts:

  • Financial leasing contracts (including financial lease-back after sales) is subject to stamp duty based on the total rental amount in the contract under the dutiable item of “loan contract” and the duty rate is 0.005%.
  • In a transaction of financial lease-back after sales, the contracts concluded between the lessee and the lessor for the purpose of sales and repurchase of the leasing assets are not subject to stamp duty.

SAT Announcement [2015] No.97



Super-deduction of R&D costs for CIT purpose

To further implement the policies in the circular Caishui [2015] No.119 (“Circular 119”) regarding the super-deduction of R&D costs, the Announcement has made detailed clarification of the following issues:

  • The scope of R&D personnel:
    - Qualified R&D personnel include research personnel, technical personnel and assistant personnel. Research personnel refer to professionals mainly specialised in R&D projects. Technical personnel refer to personnel having expertise in one or more fields of engineering technology, natural science or life science and participating in the R&D under the guidance of research personnel. Assistant personnel refer to other technical workers participating in R&D.
    - The “external R&D personnel” mentioned in Item 1 in Paragraph 1 of Article 1 of Circular 119 refer to the R&D personnel who concluded labour contracts with the company and are temporarily hired by the company.
  • Records of R&D costs for super-deduction purpose:
    - The depreciation expenses of R&D devices or equipments which are subject to accelerated depreciation according to the tax regulations can follow the depreciation of the accounting treatment, but the amounts of such depreciation expenses shall not exceed the amounts calculated according to the relevant tax policies.
    - If the personnel working on R&D projects and other devices, equipments, intangible assets used for R&D activities are also working or used for non-R&D activities at the same time, necessary records of the personnel’s activities and the using conditions of the devices, equipments and intangible assets should be made and their costs actually incurred should be reasonably allocated between the R&D costs and normal operating costs (e.g., based on the proportion of working time). Super-deduction is not allowed for such costs without reasonable allocation.
    - If the enterprise has carried out various R&D activities in a tax year, the R&D costs for super-deduction purpose should be recorded for each project respectively. Limitation of “other expenses” (as mentioned in Paragraph 1 of Article 1 of Circular 119) of each project = Total amount of R&D costs listed in the first five items of Paragraph 1 of Article 1 of Circular 119 * 10% / (1 – 10%). The “other expenses” for super-deduction purpose should be the lower ones of “other expenses” actually incurred and the limitation above.
    - If some special revenue is obtained due to the leftovers, defective materials or intermediate testing materials in the course of R&D, such special revenue should be deducted from the R&D costs for super-deduction purpose. In the event that such special revenue exceeds the deductible R&D costs, the R&D costs for super-deduction purpose shall be zero. If products are formed in the course of R&D and such products are sold, the material costs corresponding to these products cannot be included in the R&D costs for super-deduction purpose.
    - Expenses or amortisation of intangible assets formed, due to R&D activities, from the utilisation of non-taxable financial subsidies cannot be included in the R&D costs for super-deduction purpose.
    - Expenses and expenditures that are not allowed for deduction for Corporate Income Tax (“CIT”) purpose cannot be included in the R&D costs for super-deduction purpose.
  • Entrusted R&D
    - The expenses arising from the R&D activities conducted by an entrusted external institution or individual shall be included in the R&D expenses of the company incurred for super-deduction purpose at 80% of the actual expenses. Expenses incurred in R&D activities that are conducted by overseas institutions or individuals entrusted by the company shall NOT be subject to super-deduction.
  • Assessment of industries that are not subject to R&D super-deduction
    - Enterprises of industries that are not subject to R&D super-deduction (as prescribed in Circular 119) refer to the enterprises which undertake the main businesses listed in Circular 119 and such main business revenue of the year during which R&D costs are incurred accounts for more than 50% of the remaining amount of the enterprise’s total revenue minus non-taxable revenue minus investment income.
    For example, we assume that there is a company which has diversified businesses in automotive parts production and wholesale business (which is one of the black-listed industries in Circular 119) respectively. If the company has sales of RMB 40 million from automotive business in 2016 during which the company invests a lot in R&D for a new protocol of automotive parts and it also has RMB 50 million wholesale revenue, RMB 5 million non-taxable financial subsidies and RMB 10 million investment income from the profit distribution from a subsidiary for 2016, the total revenue of the company is RMB 105 million (i.e., RMB 40 million + RMB 50 million + RMB 5 million + RMB 10 million). Under such a circumstance, the ratio of wholesale revenue accounting for the “remaining amount of the enterprise’s total revenue minus non-taxable revenue minus investment income” is 55.56% (i.e., RMB 50 million / (RMB 105 million – RMB 5 million – RMB 10 million)) which is higher than 50%. Therefore, this company does not qualify for R&D cost super-deduction.
  • Accounting requirements
    - The enterprise should make accounting treatments of R&D expenditures according to the PRC accounting standards. Auxiliary accounts of R&D expenditures should be set up for inspection. The enterprise should also fill out annual summary sheet of auxiliary accounts of R&D expenditures and submit the sheet together with the annual financial statements to the tax authorities.
  • The Announcement has also set out various documentation requirements for administration of R&D declaration and recordal. The tax authorities shall enhance the follow-up administration of the super-deduction of R&D expenses and carry out regular inspections. The annual inspection rate shall not be less than 20%.

In case you have questions or for further information, please contact:

Gilbert Shen
Senior Associate
Head of Tax Practice Area Group
CMS, China
+86 21 6289 6363


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