On 18 September 2023 the Ministry of Finance, the State Taxation Administration, the National Development and Reform Commission and the Ministry of Industry and Information Technology published Announcement No. 44 of 2023 on raising the R&D super-deduction ratio for integrated circuit and industrial machine tool enterprises. The ratio rises from 100 per cent, available to ordinary enterprises, to 120 per cent.
The change looks like a rate adjustment. In practice it affects the scope of R&D costs, project management and supporting documents. The higher the ratio, the more closely the tax authority will examine whether a cost is genuinely an R&D cost.
The measure and its period
For R&D expenditure actually incurred by qualifying integrated circuit and machine tool enterprises, where no intangible asset is formed and the cost is expensed, an additional 120 per cent of the actual amount may be deducted for the period from 1 January 2023 to 31 December 2027, after the normal deduction. Where an intangible asset is formed, 220 per cent of its cost may be amortised over the same period.
Eligibility depends on conditions set out in the announcement. The detailed conditions, scope and list management requirements are to be issued separately by the four departments. A company cannot rely on its own industry description; it should check the subsequent documents.
The boundary of R&D costs
The super-deduction is not a container for all technology-related spending. Personnel costs, direct input costs, depreciation, amortisation of intangible assets and design costs for new products each have defined scope and allocation rules.
Disputes usually concern how R&D staff time is allocated, how equipment shared by production and R&D is depreciated, how trial products sold externally are treated, how commissioned R&D is counted, and how residual value of materials is offset. Companies should maintain project-level R&D ledgers rather than estimate at year end by department totals.
Projects and documentation
The foundation is the R&D project. Companies should retain the project approval resolution, plan, objectives, technical route, personnel list, time records, milestones and completion report.
For chip and machine tool companies, projects often span years and departments and may involve joint development with customers. The documents should show a defined innovation objective, a direct link between costs and the project, and a record of process even where a project failed. Invoices and contracts alone are usually insufficient.
List management and eligibility
The announcement refers to list management. Maintaining eligibility is not a one-off step. Companies should monitor list updates, changes in conditions, the share of main business and R&D intensity, so that eligibility changes do not affect the annual filing.
Where other R&D super-deduction policies also apply, the interaction should be handled under the current rules to avoid double deduction. The precise position should be confirmed against tax authority and departmental guidance.
Four preparations
First, confirm eligibility and follow the four departments’ subsequent documents and lists. Second, establish project-level ledgers with consistent time and cost allocation. Third, complete approval, process and completion documents so that costs are traceable. Fourth, conduct an internal review before the annual tax settlement, focusing on cross-department allocation and commissioned R&D.
For R&D tax compliance and supporting documents, see tax compliance; for R&D collaboration and IP ownership, see intellectual property; for ongoing tax and compliance management, see annual legal counsel.
This note is based on Announcement No. 44 of 2023 published by four departments on 18 September 2023. It is for reference only and does not constitute legal advice.