Policy for Pre-Tax Additional Deductions for R&D Expenses

China's Ministry of Finance (MOF) and State Taxation Administration (STA) jointly announced in April 2021 that the ratio of pre-tax dedictions on manufacturing firms' expenses on R&D will be raised from 75% to 100%, starting retrospectively on January 1, 2021. Higher pre-tax deductions result in lower corporate income tax that must be paid by companies. Hence, this measure aims to incentivise R&D activities in the manufacturing industry, boost innovation and industrial advancement, and promote resilience. The types of deductible R&D expenses include:
1) Staff and labor expenses (of personnel engaging in R&D activities directly)
2) Directs costs
3) Depreciation of instruments and equipment used for R&D activities
4) Amortisation of intangible assets
5) Design fees
6) Other relevant expenses
This measure does not directly target clusters but has the potential to facilitate their set-up and development as the can benefit from the policy.