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With a view to encouraging enterprises to increase their investment in innovation and supporting the development of basic research in China, the preferential tax policy for enterprises' investment in basic research is hereby announced as follows:

I. The expenses invested by enterprises for non-profit scientific and technological research and development institutions (the "sci-tech research institutions"), institutions of higher learning, and government natural science funds for the purpose of basic research may be eligible for pre-tax deduction as per the actual amount when calculating the taxable income, and an 100% additional pre-tax deduction is available.
The income from basic research funds received by non-profit sci-tech research institutions and institutions of higher learning from enterprises, individuals, and other organizations will be exempted from enterprise income tax.

II. The non-profit sci-tech research institutions and the institutions of higher learning mentioned in Article I shall include the sci-tech research institutions and the institutions of higher learning established by the state, and the private non-profit sci-tech research institutions and institutions of higher learning, which shall be identified based on the following conditions:

(I) The sci-tech research institutions and the institutions of higher learning established by the state shall refer to the sci-tech research institutions and the public institutions of higher learning that are established using fiscal funds and have obtained the legal person license for public institution, including the sci-tech research institutions and institutions of higher learning at the central and local levels.

(II) The private non-profit sci-tech research institutions and institutions of higher learning shall refer to the sci-tech research institutions and institutions of higher learning that simultaneously meet all of the following conditions:

1. Having been registered at the civil affair authority pursuant to the Interim Administrative Regulations on the Registration of Private Non-enterprise Entities, and having obtained the Private Non-enterprise Entity (Corporate) Registration Certificate.

2. In the case of a private non-profit sci-tech research institution, the business scope registered on its Private Non-enterprise Entity (Corporate) Registration Certificate shall belong to the scope of scientific research and technological development, achievement transfer, scientific and technological consultation and service, and scientific and technological achievement evaluation. If there is any dispute in connection with such business scope, relevant taxation authority shall request the competent administrative department of science and technology at or above the county level for identification.

   In the case of a private non-profit institution of higher learning, it shall obtain the License for Private School issued by competent education department and it is registered as an "institution of higher learning" in terms of school type.

3. Having obtained, upon accreditation, the eligibility of the non-profit organization to be exempt from enterprise income tax.

III. The government natural science funds mentioned in Article I shall refer to the natural science funds under the administration of the natural sciences foundation committees established by the state and local governments.

IV. The basic research mentioned in Article I shall refer to the activities of expounding and testing various hypotheses, principles and laws by analyzing the characteristics, structures and interrelationships of objects, which shall be identified according to the following standards:

(I) Basic research does not presuppose a specific purpose for application or use; it mainly aims to acquire new knowledge about the basic principles of phenomena and observable facts, and it may focus on a known or cutting-edge scientific issue, or some broad areas of general interest for wide application in the future.

(II) Basic research can be divided into two types. The first is free exploratory basic research, which means that the research is carried out for the purpose of improving knowledge rather than pursuing economic or social benefits, or actively seeking to apply it to practical problems or transfer the achievement to departments responsible for application; the second is goal-oriented (targeted) basic research, which aims to acquire knowledge in a certain area and is expected to lay the foundation for exploring and solving problems that are currently known or may arise in the future.

(III) The achievements from basic research are usually manifested in new principles, new theories, new laws, or new knowledge, and are mainly in the form of papers, works, and research reports. Meanwhile, due to the significant exploratory nature of basic research and the risk of failure, the papers, works, and research reports can also present the achievements by means of trial and error or falsification.
The aforesaid basic research does not include the research conducted overseas, or the research in the social sciences, arts, or humanities.

V. Enterprises investing in basic research shall sign relevant agreement or contract, which shall explicitly state that the funds will be used in the field of basic research.

VI. Enterprises, non-profit sci-tech research institutions, institutions of higher learning, and government natural science fund management entities shall preserve relevant materials for record-filing, including investment agreements, investment contracts, and relevant bills, in which the investing parties, receiving parties, investment purpose (indicating the investment is used for basic research), investment amount, and other information shall be specified.

VII. Non-profit sci-tech research institutions, institutions of higher learning, and government natural science fund management entities shall carry out effective management of the investment made by enterprises for basic research, establish a sound supervision mechanism, ensure that the funds are used for basic research, and raise the efficiency of fund use.

VIII. This Announcement shall become effective from January 1, 2022.

This Announcement is hereby given.