China announced measures Wednesday to encourage research and development (R&D) by tech firms through favorable tax terms, the Ministry of Finance (MOF) said in a statement.

Small and medium sized-enterprises (SME) in the technological sector can deduct an additional 75 percent of the R&D costs that occurred before paying taxes, effectively lowering their taxable income, according to the statement[Chinese Visa].

Tech SMEs that chose alternatively to capitalize the R&D costs as intangible assets in the current accounting period can amortize the assets at 175 percent of the original costs.

The new tax term will be in effect from the beginning of 2017 to the end of 2019, the statement said[China Registration].

China has been offering tax incentives to spur corporate dynamism and competitiveness, offering tailored measures to firms of different types.

On Wednesday, the MOF also announced tax incentives for venture capital firms, allowing them to deduct a certain amount of taxable income for investing in startups.

The value added tax (VAT) system will also be streamlined, with four VAT brackets reduced to three, the MOF said.

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