- Project approval documents are the starting point
- Timesheets and expense collection must be documented in sync
- Supporting records matter more than the filing form
1. Before Filing: Define What Counts as R&D
Many companies fail not because they miscalculate expenses, but because they cannot clearly articulate the R&D activity itself. Current policy defines R&D as systematic, creative, and uncertain—three words that need to be grounded in project approval documents. We recommend that at the start of each year, when launching R&D projects, companies specify project objectives, technical approach, expected outcomes, participating personnel, and start/end dates. These documents are not written for the tax authority; they are written for your own R&D and finance teams—they are the sole basis for subsequent timesheet collection and expense allocation.
Project names and codes in approval documents must match timesheet records and expense vouchers. A common problem is inconsistency—the project is called "intelligent control system R&D," the timesheet says "production line debugging," and the expense voucher says "equipment procurement." When the tax authority reviews, these discrepancies are hard to explain. The Private Economy Promotion Law, effective May 20, 2025, explicitly supports private enterprises in participating in technological innovation. The policy environment is improving, but support presupposes that the company's own management keeps pace.
2. During Filing: Align Timesheets and Expense Collection
The scope of R&D expense collection for the super-deduction is clearly defined: personnel labor costs, direct input costs, depreciation, intangible asset amortization, new product design fees, and more. The difficulty lies not in the scope but in allocation. Especially when R&D personnel also work on production, the time allocation ratio must be supported by original records.
We recommend establishing a "three-table alignment" mechanism: the R&D project timesheet, the payroll allocation table, and the expense collection table must be mutually reconcilable. R&D staff fill in timesheets weekly, confirmed by the project leader; the payroll allocation table allocates labor costs between R&D and non-R&D based on time ratios; the expense collection table collects direct input, depreciation, and other costs by project. When the three tables are logically consistent, filling out the filing form becomes straightforward.
The auxiliary ledger is another easily overlooked point. The rules require companies to set up auxiliary ledgers by R&D project to accurately collect and account for the actual R&D expenses eligible for the super-deduction each year. The auxiliary ledger is not an automatically generated transaction log from accounting software; it is a ledger registered transaction by transaction by project and expense category. We suggest building a template in Excel or a professional tool and updating it monthly to avoid year-end catch-up bookkeeping.
3. After Filing: Supporting Records Determine Audit Outcomes
The R&D super-deduction operates on a "genuine occurrence, self-assessment, file and enjoy, retain supporting records for inspection" basis. This means the filing process is relatively simple, but the requirements for supporting records are not reduced. During a tax audit, companies need to provide: project approval resolutions, R&D institution staffing, R&D personnel lists, R&D expenditure auxiliary ledgers, project plans, project team composition and personnel lists, commissioned R&D contracts, project acceptance reports, and more.
We recommend managing supporting records in two categories: basic records (approval documents, personnel lists, auxiliary ledgers) archived by year, and process records (timesheets, experiment logs, acceptance reports) archived by project. Both categories should be retained for at least five years after the filing year. In practice, companies that run into problems during audits often have genuine expenses but incomplete records—approval documents exist but timesheets are missing; auxiliary ledgers exist but acceptance reports are absent. These details may not surface during filing, but they become hard flaws during audits.
Also note the negative industry list. Tobacco manufacturing, accommodation and catering, wholesale and retail, real estate, leasing and business services, entertainment, and other industries are not eligible for the super-deduction. Companies with multiple business lines need to accurately allocate the revenue ratio corresponding to R&D activities to avoid mixing non-R&D expenses into the collection scope.
Conclusion
The R&D super-deduction is a policy where management creates value. Clear approval documents, timely timesheets, and complete auxiliary ledgers matter more than a beautifully filled filing form. For private enterprises, making these three things routine practices will naturally capture the policy benefit; scrambling during the filing window often backfires. The real work of tax management is done in ordinary times.