Perfection of China's R&D Tax Incentives in Comparison with US R&D Tax Credits

This paper reviews the policy evolution of China's R&D tax incentives since 1978. It identifies three phrases according to China's tax system reform. From 1981 to 1994, R&D tax incentive policy began in the form of direct tax exemption. From 1994 to 2008, the R&D tax policy had shifted from a region-oriented to an industry-oriented approach. Since the unification of corporation income tax in 2008, the R&D tax incentives have been applied to all the corporations in China. In addition, this paper compares China's R&D tax incentives with the R&D tax credits in the U.S. federal and state governments. After discussing six major differences in R&D tax policy between the two countries, this paper provides some recommendations to improve the design and administration of R&D tax incentives in China.