One of the thrusts of China’s innovation plans is to encourage more enterprises to invest in research and development activities. Therefore, China continues to improve its mechanisms for the establishment of tech-based companies. At the same time, the country is also determined to improve the tax benefits that high- technology enterprises can enjoy.
Read our previous article on Tax Incentives for High Tech Enterprises in China
As China moves toward the deepening of its science and technology system and promoting mass entrepreneurship, it also drives small and medium-sized enterprises to join the cause. Thus, SMEs can get more rooms for technological advancements. Keep reading to find out how SMEs can register for R&D.
What is a technology-based SME?
A TSME falls under the scope of small and medium-sized enterprises that conduct technology-based activities. It consists of scientific and technological personnel who are involved in research and development activities and obtain patents for creating high-tech products or services. Technology-based SMEs aim to contribute toward national sustainable development. Thus, they must follow certain measures to qualify as TSME.
Qualifications of TSME
According to the No. 115 [2017] provision for TSME, enterprises can independently judge themselves to qualify for an R&D activity based on a set of criteria. Hence, they can apply for registration if they deem themselves qualified. Accordingly, the Ministry of Science and Technology is responsible for evaluating the said application through its “National Science and Technology SME Information Database”.
Conditions and evaluation criteria for TSME
An enterprise must meet the following conditions for a TSME status:
- Registered in Mainland China;
- With less than 500 employees; annual income of not more than RMB 200 million and with a total asset worth less than RMB 200 million;
- Products and services offered are not prohibited, restricted, or eliminated by the government;
- Does not have any serious safety or environment-related accidents during the previous and current period of application;
- Having no issues concerning abnormal business operation or breach of the law;
- Scored more than 60 points in the evaluation index for scientific and technological SMEs.
Evaluation index or indicators concerning TSME
China’s MST regards the point system for evaluating TSMEs in three categories including 1) Personnel; 2) R&D investment, and 3) Achievements.
The table below shows the basis points under the three mentioned categories.
Source: Ministry of Science and Technology, Announcement No. 115 [2017]
- The scientific and technological personnel indicator depends on the percentage of employees with qualifying scores or points.
- The local ministry evaluates R&D investments through R&D expenses and its ratio to the enterprise’s total sales revenue and overall cost.
- The achievement indicator is based on the stages of intellectual property rights or patents that have no disputes related to the products or services the enterprise owns.
On further qualifications for technology-based enterprise
According to the MST provision, enterprises which are registered in Mainland China and whose products or services are approved by the government may also qualify for TSME without having to meet all the earlier conditions if:
- The enterprise has a high-tech enterprise qualification certificate with a validity period;
- It has obtained a national award within five years and ranked top three;
- Recognized at the provincial level and;
- Contributed to the formulation of national standards for the industry in the past 5 years.
General application steps and procedures
- First, fill in the TSME information form Information Sheet for TSMEs found here.
- Then, the MST provincial level department will assess the information provided by the enterprise. If the information is judged complete, the local department will publish the announcement on its service platform within 10 working days.
- After approval, the enterprise will obtain a registration number.
- Finally, the enterprise must update its information on the database for TSMEs through the service platform every year by the end of March.
Conditions for license revocation
- Disqualified from the stipulated requirement;
- Committed serious fraud or untrustworthiness in scientific research;
- Reported major safety or environment-related accidents or violations;
- Listed among enterprises with abnormal business operations;
- Failed to regularly update information on the service platform for TSME.
Conclusion
In 2019, China’s State Council pushed for the “healthy development of small and medium-sized enterprises” that focused on several measures to increase the growth of TSMEs. Aside from tax incentives, China also pledged to support financing policies and strengthen the capital market for TSME investments.
Moreover, the policy noted that foreigners with permanent residency in China would enjoy the same rights of Chinese citizens when establishing a tech-based SME.If you want to know more details about how to invest and register for the R&D industry, contact our team for consultation and assistance. Follow us on social media to get the latest news!
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