In order to better support the innovation and development of enterprises and in accordance with the requirements of thoroughly implementing Xi Jinping's thought on socialism with Chinese characteristics for a new era, the State Administration of Taxation and the Ministry of Finance have issued the "Announcement on Matters Related to Optimizing Prepayment Declaration and Enjoying Additional Deduction Policy for Research and Development Expenses" (No. 11 of 2023, hereinafter referred to as the "Announcement").

Policy Contents

1. When enterprises make prepayment declaration of the second quarter (for quarterly prepayment) in July or June (for monthly prepayment) of corporate income tax, if they can accurately classify and account for research and development expenses, they can independently choose to enjoy the additional deduction policy for research and development expenses based on their own actual production and operation.
2. When enterprises make prepayment declaration of the third quarter (for quarterly prepayment) in October or September (for monthly prepayment) of corporate income tax, if they can accurately classify and account for research and development expenses, they can independently choose to enjoy the additional deduction policy for research and development expenses based on their own actual production and operation for the first three quarters of the year.
3. The preferential policy for additional deduction of research and development expenses is implemented through the "real occurrence, self-determination, declaration for enjoyment, and retention of relevant materials" approach. Enterprises calculate the amount of additional deduction based on the actual incurred research and development expenditure, report it in the "Enterprise Income Tax Monthly (Quarterly) Prepayment Tax Declaration Form (Class A)" to enjoy the tax benefits, and fill out the "Detailed Form for Additional Deduction of Research and Development Expenses" (A107012) according to the research and development expenses that qualify for the additional deduction (for the first half of the year or the first three quarters).

Policy Background

Since the implementation of the policy allowing enterprises to enjoy additional deduction for research and development expenses during the October prepayment declaration, the operation has been favorable. It has advanced the timing for enterprises to benefit from the policy by 3-8 months, enabling them to enjoy the policy dividends earlier and alleviating financial pressure. During the research on implementing Xi Jinping's thought on socialism with Chinese characteristics for a new era, some enterprises have raised concerns that they can only enjoy the additional deduction for research and development expenses during the October prepayment declaration and the subsequent annual settlement period. They suggested expanding the time points for eligibility, allowing enterprises to enjoy the policy dividends even earlier.

Policy implementation regulations and case study

1. What are the main changes in the "Announcement"?

Answer: According to the "Announcement of the State Administration of Taxation on Matters Concerning Enterprises Enjoying Preferential Policies for Prepayment Declaration and Additional Deduction of Research and Development Expenses" (No. 10 of 2022), the "Announcement of the State Administration of Taxation on the Release of the Revised Measures for Handling Preferential Policies on Enterprise Income Tax" (No. 23 of 2018), and other regulations, enterprises can enjoy the additional deduction policy for research and development expenses during the October prepayment declaration and annual settlement period. The "Announcement" adds another eligibility point based on the above two time points. It allows enterprises to enjoy the additional deduction policy for research and development expenses for the first half of the year when making prepayment declaration of the second quarter (for quarterly prepayment) in July or June (for monthly prepayment) of corporate income tax, provided that they can accurately classify and account for research and development expenses.

2. If an enterprise does not choose to enjoy the additional deduction policy for research and development expenses during the July prepayment declaration, can they still enjoy it later?

Answer: For enterprises that did not choose to enjoy the benefits during the July prepayment declaration, if they can accurately classify and account for research and development expenses during the October prepayment declaration or annual settlement period, they can independently choose to enjoy the benefits based on their own actual production and operation circumstances during the October prepayment declaration or annual settlement.

3. What are the changes in the management requirements for enterprises to enjoy the additional deduction policy for research and development expenses during prepayment declaration, compared to the previous Announcement No. 10?

Answer: The management requirements for enterprises to enjoy the additional deduction policy for research and development expenses during prepayment declaration, as stated in the "Announcement," remain consistent with the requirements in Announcement No. 10. There are no changes. Specifically, enterprises that enjoy the preferential policy of additional deduction for research and development expenses are required to follow the "real occurrence, self-determination, declaration for enjoyment, and retention of relevant materials" approach. They calculate the additional deduction amount based on the actual incurred research and development expenses, report it in the "Enterprise Income Tax Monthly (Quarterly) Prepayment Tax Declaration Form (Class A)" to enjoy the tax benefits, and fill out the "Detailed Form for Additional Deduction of Research and Development Expenses" (A107012) according to the qualifying research and development expenses (for the first half of the year or the first three quarters). The "Detailed Form for Additional Deduction of Research and Development Expenses" (A107012) should be retained along with other prescribed documents for future reference.

4. The "accurate classification and accounting of research and development expenses" mentioned in this "Announcement" specifically refers to what requirements?

Answer: The "Notice of the Ministry of Finance, the State Administration of Taxation, and the Ministry of Science and Technology on Improving the Pre-tax Additional Deduction Policy for Research and Development Expenses" (Caishui [2015] No. 119) has made clear provisions on the accurate classification and accounting of research and development expenses, including the following requirements: First, enterprises should handle research and development expenditures in accordance with the requirements of the national financial accounting system. Second, for the research and development expenses eligible for additional deduction, enterprises should set up auxiliary accounts according to research and development projects to accurately classify and account for the actual amount of research and development expenses that can be additionally deducted in the current year. Third, if an enterprise conducts multiple research and development activities within a tax year, it should separately classify the research and development expenses eligible for additional deduction according to different research and development projects. Fourth, enterprises should separately account for research and development expenses and production and operating expenses, accurately and reasonably allocating various expense items. For expenses that cannot be clearly distinguished, additional deduction shall not be applied.

5. Assuming that our company incurred 1 million yuan in research and development expenses in the first half of the year, of which 600,000 yuan can be accurately accounted and classified, and the remaining 400,000 yuan cannot be accurately accounted and classified yet, can we still enjoy the policy of additional deduction for research and development expenses during the July prepayment declaration?

Answer: During the July prepayment declaration, your company can declare and enjoy the policy of additional deduction for research and development expenses based on the 600,000 yuan that has already been accurately accounted and classified. For the remaining 400,000 yuan, if it can be accurately accounted and classified during the October prepayment declaration or annual settlement period, the additional deduction policy for research and development expenses can be enjoyed during the October prepayment declaration or annual settlement.