Enterprise development, innovation is very important. Enterprise innovation activities require a large amount of R&D investment. In order to encourage enterprises to increase investment in R&D and promote R&D innovation activities, the Chinese government has introduced many policies to promote enterprise innovation. Every cosmetic business should be more aware of tax costs, pay attention to tax preferential policies, and reasonably reduce business tax costs within the scope of legal provisions. The policy of additional deduction for R&D expenses and the preferential income tax policy for high-tech enterprises are two important preferential tax policies related to R&D investment of the Chinese government to guide enterprises to innovate. Rational use of these policies will greatly reduce the tax cost of enterprises. The collection of R&D expenses and the setting of R&D centers are not only management problems, but also tax costs. Jiao Hanwei, lawyer of Shanghai Guolinghouse Law Firm, will discuss the collection of R&D expenses and the setting of R&D institutions of cosmetics enterprises from the perspective of tax costs in combination with practical experience for operators' reference.

Research and development expenses additional deduction policy

Additional deduction is a tax base preferential method of enterprise income tax. Generally, it refers to the amount of actual expenditure in accordance with the provisions of the tax law, and then add a certain percentage as the deduction amount in the calculation of taxable income. The implementation of additional deductions for enterprises' research and development expenditures is called research and development expenses additional deductions. According to the Enterprise Income Tax Law of China, the following expenditures of an enterprise may be deducted in the calculation of taxable income amount: research and development expenses incurred in the development of new technologies, new products and new processes. According to the current policies and regulations, if the R&D expenses of the enterprise for the development of new technologies, new products and new processes do not form intangible assets and are included in the profit and loss of the current period, on the basis of actual deduction in accordance with the provisions, the R&D expenses shall be deducted at 50% more; If intangible assets are formed, they shall be amortized at 150% of the cost of intangible assets. For example, if the actual expenditure on the development of new products is 10 million yuan in the current year, it can be deducted by 15 million yuan (10 million ×150%) before tax. For smes based on science and technology, from January 1, 2017 to December 31, 2019, the deduction rate for R&D expenses increased from 50% to 75%.

Cosmetic research and development expenses collected

China's R & D expenses additional deduction policy to implement the industry negative list system, cosmetics enterprises do not belong to the negative list involved in the industry, cosmetics research and development expenses apply to the above additional deduction policy. According to the regulations, the R&D expenses incurred in the form of independent research and development of cosmetics enterprises, such as labor costs, direct input costs, depreciation costs, amortization of intangible assets, new product design fees, new process procedures, clinical trial fees for new drug research and development, field test fees for exploration and development technologies, can be added and deducted when the income tax is settled. In the research and development commissioned by cosmetics enterprises, 80% of the expenses incurred in the research and development activities shall be taken as the additional deduction base. Cosmetics operators should accurately collect research and development expenses in strict accordance with the corresponding policies in the business process, and accurately apply the policy of additional deduction of research and development expenses to avoid tax risks. At the same time, enterprises should maximize the use of the R & D expense deduction policy in the process of operation, and make overall arrangements in the aspects of enterprise division, post setting, personnel definition, expense collection, and R & D forms, in order to maximize the enjoyment of the R & D expense deduction policy, reduce the tax burden cost, and promote the development of enterprises. For example, as far as the cosmetics industry is concerned, product formulation research and development personnel of course belong to the category of research and development personnel, while product designers, packaging materials research and development personnel, company management system development engineers, etc., should belong to the category of research and development personnel.

High-tech enterprise policy

The so-called high-tech enterprises refer to resident enterprises registered in China (excluding Hong Kong, Macao and Taiwan) for more than one year, which continuously conduct research and development and transform technological achievements in the high-tech fields supported by the State, form the core independent intellectual property rights of enterprises, and carry out business activities on this basis. China's "Enterprise Income Tax Law" stipulates that high-tech enterprises which need key support from the State shall be subject to enterprise income tax at a reduced rate of 15%. For non-high-tech enterprises, the enterprise income tax shall be levied at the rate of 25%. According to the regulations, the high-tech field is mainly: electronic information, biology and new medicine, aerospace, new materials, high-tech services, new energy and energy conservation, resources and environment, advanced manufacturing and automation eight fields. There are some controversies on whether cosmetics enterprises belong to the high-tech field. In the process of identifying high-tech enterprises, cosmetics companies can consider thinking from the category of biology and new medicine industry, especially in the direction of light industry and chemical biology. In practice, many cosmetics companies have been identified as high-tech enterprises.

Cosmetics enterprise research and development institution setting

The establishment of R&D institutions is not only a management issue, but also a tax issue. The setting of cosmetic research and development institutions is not only related to the collection of research and development expenses and research and development expenses additional deduction policy, but also determines whether enterprises can enjoy the preferential policy of high-tech enterprise income tax to a large extent, which is of great significance. Under normal circumstances, cosmetics research and development institutions have two forms of setting up, one is as an internal department of the enterprise, the other is as an independent legal person, which is the mainstream model as an internal part of the company. At present, both L 'Oreal and China's domestic cosmetics enterprises adopt the form of part of the enterprise; Amorepacific Corporation and Shiseido Cosmetics Corporation adopt a separate legal entity form. Why is cosmetics research and development institution as an internal institution the mainstream model? Because from the perspective of management, the cosmetics industry belongs to the category of fast-moving consumer goods. As an internal department of the company, cosmetics R & D institutions facilitate unified management of the business chain and make consistent business responses to the rapidly changing cosmetics market. On the other hand, from the perspective of tax costs, cosmetics R&D institutions, as internal departments of the company, can maximize the preferential tax policy of additional deduction of R&D expenses in the operating mother. If they meet the legal conditions and are identified as high-tech enterprises, the operating mother will enjoy the preferential tax policy of high-tech enterprises, which will greatly reduce the tax costs of the operating mother. In practice, why do some cosmetics companies set up R&D centers as independent legal entities outside the operating mother? There are usually two considerations: (1) The mother of the cosmetics business does not have the conditions for the identification of high-tech enterprises, at this time, the enterprise will set up the R&D center as an independent legal person in order to enjoy the preferential tax policies of high-tech enterprises, and apply for the identification of high-tech enterprises, and then enjoy the preferential tax policies of high-tech enterprises in the field of research and development. (2) There are usually multiple operating entities in a business system that adopts the group structure. For example, a multinational cosmetics group company has multiple factories in China. If its independent operating entity does not meet the conditions for recognition as a high-tech enterprise, the group company will consider setting its R&D center as an independent legal person and apply for recognition as a high-tech enterprise. At the same time, the R & D center will be used as a tax planning platform to collect the operating profits of various operating entities, and maximize the preferential tax policies of high-tech enterprises. Of course, this tax planning model will be challenged by related party transactions and other issues, and must be planned within the legal scope.

In the market competition, the research and development power and capability of cosmetics enterprises are particularly important for the development of enterprises. In the increasingly competitive cosmetics industry, cosmetics enterprises should pay attention to the collection of research and development expenses and the setting of research and development centers from the perspective of management and tax costs, and maximize the legal use of research and development expenses deduction policy and high-tech enterprise income tax preferential policy to reduce business tax costs. It should be emphasized here that in accordance with the provisions of the Notice of the Ministry of Finance and the State Administration of Taxation on Several Issues concerning the implementation of the Preferential Policies of Enterprise Income Tax (Finance and Taxation [2009] No. 69), the various tax incentives provided for in the Enterprise Income Tax Law and its implementation regulations can be enjoyed at the same time if an enterprise meets the prescribed conditions. Therefore, enterprises that both meet the conditions for enjoying the additional deduction of research and development costs and meet the conditions for enjoying other preferential policies can enjoy the relevant preferential policies at the same time.

Jiao Hanwei

Chief partner and lawyer of Shanghai Guohillhouse Law Firm

More than 10 years of legal service experience and more than five years of business experience, familiar with law, familiar with business, He is good at providing enterprises with legal counsel, brand management, business compliance, business negotiation, intellectual property management, tax planning, equity transfer, corporate structure design, equity incentive, investment and financing, restructuring and merger, dispute resolution and other solutions for the whole stage of enterprise development from the perspective of law and business operation.