China: R&D 75% “super deduction” extended, increased to 100% for manufacturers

2021 government “work report” announced an extension of the existing R&D expense “super deduction” that had been scheduled to expire

Extension of the existing R&D expense “super deduction”

The 2021 government “work report” announced an extension of the existing research and development (R&D) expense “super deduction” of 75%—that had been scheduled to expire by 31 December 2020.

Moreover, an enhanced R&D super deduction of 100% will be allowed manufacturing enterprises (the deduction rate for such enterprises will be increased to 100%). 


China initially launched the R&D super-deduction policy (under the corporate income tax) in 1996, and the R&D super deduction was originally applicable only with regard to state-owned and collectively-owned industrial enterprises. Since then, the R&D super deduction has been extended to cover most industries, with the bonus deduction rate increased to 75% (RMB1.75 deductible for every RMB1 of expenditure incurred) from the original deduction of 50%. In 2019, the China Innovation Environment Index indicated that the proportion of enterprises enjoying the R&D expense super deduction had increased significantly, with a growth rate of 38.9%.

R&D super deduction extended, expanded

The work report (delivered 5 March 20201) included new goals for innovation-driven development during a five-year period (2021 to 2025). Among the specific measures were continuance of the existing 75% R&D expense super-deduction rules and an enhanced 100% super deduction for manufacturing enterprises. The concept was to encourage enterprises to increase their R&D outlays.

The Ministry of Finance and State Taxation Administration subsequently issued circulars providing a three-year extension of the 75% R&D expense super-deduction rules (the rules have been extended to 31 December 2023) and also setting out rules for implementing the enhanced 100% super-deduction measures for the manufacturing industry.

According to implementation rules (Caishui [2021] No. 13), the new measures are effective beginning from 2021 onwards, and a definition is provided for “manufacturing enterprises” In addition, the implementation rules also introduce a new policy to allow enterprises to “pre-claim” the R&D super deduction for the first half of a tax year, during their quarterly or monthly filing in September 2021.

KPMG observation

The latest increase of the R&D expense super deduction rate to 100% for the manufacturing industry is in line with the national strategic focus on manufacturing innovation. Together with other fiscal and tax support measures, observers expected this will drive manufacturing enterprises to increase their R&D outlays and better leverage new advanced technologies such as internet, 5G, big data and artificial intelligence.

There are certain action steps that taxpayers in the manufacturing sector need to consider taking in light of the expanded R&D super deduction.


For more information contact a KPMG tax professional:

David Ling | +1 609 874 4381 |



The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.