R&D expense super deduction refers to research and development expenses incurred by enterprises for developing new technologies, new products, and new processes, which can be used when calculating taxable income to deduct an additional percentage on top of the actual expenditure, serving as the deductible amount when calculating taxable income. The R&D expense super deduction policy is an important tax incentive policy to promote technological progress in enterprises.

For enterprises, effective financial planning and accurate tracking of R&D expenditure are important for managing these tax-deductible expenses. Financial planning software can help enterprises organize financial data and improve visibility into R&D-related expenditures, supporting more effective budgeting and financial management.

If the enterprise is a technology-based small and medium-sized enterprise (SME), then R&D expenses can be super deducted at 75% of the actual expenditure before tax: According to Cai Shui [2017] No. 34, for R&D expenses actually incurred by technology-based SMEs in their R&D activities, if they do not form intangible assets and are expensed in the current period, on the basis of actual deduction as per regulations, during the period from January 1, 2017, to December 31, 2019, an additional 75% of the actual expenditure can be super deducted before tax; if they form intangible assets, they shall be amortized before tax at 175% of the intangible asset cost during the aforementioned period.

From a financial management perspective, accurate budget control and expenditure tracking are important when enterprises manage R&D costs and assess their overall financial position. Enterprise budgeting software can support organizations in maintaining more structured financial data and monitoring planned and actual expenditures.

If the enterprise is a non-technology-based small and medium-sized enterprise (SME), then R&D expenses can be super deducted at 50% of the actual expenditure before tax: According to Cai Shui [2015] No. 119, for enterprises eligible for R&D expense super deduction, for R&D expenses actually incurred by enterprises in their R&D activities, if they do not form intangible assets and are expensed in the current period, on the basis of actual deduction as per regulations, an additional 50% of the actual expenditure for the current year shall be deducted from the current year’s taxable income; if they form intangible assets, they shall be amortized before tax at 150% of the intangible asset cost.

Accurate financial data is also important for FP&A teams when analyzing R&D expenditure, preparing budgets, and forecasting future financial requirements. FP&A software can help organizations connect financial planning with actual business expenditure, providing greater visibility into the financial impact of R&D activities.

According to the relevant provisions of the “Notice of the Ministry of Finance, the State Taxation Administration, and the Ministry of Science and Technology on Improving the Policy of Pre-tax Super Deduction for Research and Development Expenses” (Cai Shui [2015] No. 119), the following are the R&D expenses eligible for super deduction:

Direct input expenses

For example, expenses for materials, fuel, and power directly consumed in R&D activities, various expenses for intermediate tests and product trials, and expenses such as instrument and equipment rental fees for R&D activities. Accurate expense tracking and financial modeling can help enterprises understand how these direct inputs affect overall R&D costs and financial plans.

Personnel expenses

Wages and salaries, basic endowment insurance, basic medical insurance, unemployment insurance, work-related injury insurance, maternity insurance, and housing provident fund for personnel directly engaged in R&D activities, as well as labor service fees for externally hired R&D personnel. Proper planning of personnel-related costs is an important part of enterprise financial planning, particularly when organizations need to forecast future R&D resource requirements.

Design and development expenses

Design fees for new products, formulation fees for new process specifications, clinical trial fees for new drug development, and field trial fees for exploration and development technologies. These expenditures can be incorporated into broader strategic planning and financial planning processes to help enterprises evaluate the resources required for innovation and product development.

Depreciation expenses

Depreciation expenses for instruments and equipment used in R&D activities. Tracking depreciation alongside other R&D expenditures can provide a more complete view of costs and support more accurate financial analysis and budgeting.

Amortization of intangible assets

Amortization expenses for software, patent rights, and non-patent technologies used in R&D activities. Incorporating these costs into financial planning processes enables enterprises to maintain a clearer view of their R&D-related financial commitments.

Other related expenses

Other expenses directly related to R&D activities. Comprehensive expense management and planning analytics software can help organizations analyze expenditure data and improve visibility across different categories of business costs.

Other expenses stipulated by the Ministry of Finance and the State Taxation Administration

Enterprises should account for these expenses in accordance with the relevant policy requirements and maintain accurate financial records. Effective enterprise performance management software can provide organizations with a centralized framework for financial planning, budgeting, analysis, and performance monitoring.