Well, R&D can be broadly defined as the gathering of knowledge to create new products or discover new ways to improve their existing products and services. It involves efforts to explore technological advancements and scientific research to gain competitive advantages. There is generally no immediate return on investment because as innovation takes time.
Mongolia’s policymakers encourage manufacturing. However, there are no specific research & development (R&D) tax incentives under Mongolia’s tax laws.
The Corporate Income Tax Act 2019 requires fixed assets with a useful life of greater than one year to be depreciated as follows:
The Value-added Tax Act 2015 requires the offset of input VAT paid on the purchase of fixed assets to be deferred as follows:
There is, however, VAT and customs duty exemptions on equipment manufactured in Mongolia for use by SMEs, renewable energy equipment and equipment to be used in petroleum exploration and extraction.
We’ll take a look at what incentives other countries offer.
At the federal level, the United States has numerous incentives for R&D including credits and various expensing provisions to accelerate depreciation.
Section 179 of the Internal Revenue Code 1986 deals with such deductions. Under Section 179, allows businesses to deduct from gross income the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. This is in contrast with depreciation. It is an incentive by the U.S. government to encourage businesses to purchase equipment and invest in themselves. However, there is a cap on the amount that can deducted, which is US$1,160,000 for 2023.
China allows accelerated or enhanced tax depreciation of fixed assets to stimulate capital investments.
The principal incentives include:
Enterprises are allowed to claim an immediate deduction without depreciating the amount over the period of useful life for qualifying equipment acquired.
For example, China allows 100% deduction of capex on qualifying R&D expenditure. The super deduction is increased to 120% for certain sectors such as integrated circuits. Chinese businesses are allowed to deduct 200% of the amount of the funds provided to qualifying Chinese institutions for fundamental research purposes.
The following capital expenditure may be expensed in one lump sum in the year of acquisition:
These policies change every year by the State Council of PRC. They may supplement the list, introduce new incentives or change the thresholds for qualifying investments or the applicable period. China has been changing their policies to attract FDI since the tax reforms in 1994.
For example, in June 2025, China announced a 10% tax credit for qualified foreign investors who directly reinvest profits from their Chinese subsidiaries in Mainland China, effective retroactively from 1 January 2025 through 31 December 2028.
Foreign investors can offset their Chinese tax payables against the reinvestment amount, with any unused credits eligible to be carried forward beyond 2028 until fully utilized, enhancing cash flow for reinvestments.
The work that qualifies for R&D tax relief must be part of a specific project to make an advance in science or technology.
So what is this R&D credit? It’s basically an amount that can be deducted from tax liabilities. In the UK’s case, companies are allowed to deduct an amount equal to 13% of their R&D expense from tax liabilities.
India allows a deduction of up to 100% in respect of capital and revenue expenditure on scientific research conducted in-house by companies in specific industries (such as biotechnology or manufacturing) and for payments made to organisations for scientific research.
