Since January 1, 2020, the Shanghai Municipality has granted preferential taxes to key enterprises in the Lingang New Area. According to the notice released by the Ministry of Finance, enterprises conducting business in the Lingang New Area will be subject to a reduced corporate income tax of 15 percent within five years from their date of establishment. Enterprises engaged in high-technology development such as integrated circuits, artificial intelligence, biomedicine, and R&D can benefit from the new policy.
Have a look at our previous article on IC and Software Enterprises to Enjoy Tax Exemptions
If your business is located in the Lingang New Area or thinking about investing or starting a company in one of Shanghai’s Free Trade Zones, read on to find out how to qualify for the preferential taxes.
Qualifications for preferential taxes at the Lingang New Area
The new preferential policy on corporate income tax (CIT) is applicable for enterprises if:
- Their business is registered in the Lingang New Area from January 1, 2020;
- They are engaged in key industries such as integrated circuit, artificial intelligence, biomedicine, and civil aviation industries;
- They carry out substantive production or R&D activities in the new area whereas ‘substantive’ means fixed and continual business activities in the eligible sectors mentioned;
- The company’s main R&D or sales product must include at least one key technology product.
Investors and enterprises must also meet certain conditions to be eligible for the reduced tax rate of 15 percent. Previously, enterprises in the said industries had to pay for a standard CIT rate of 25 percent.
Investors in the key enterprises must have a high-level standing in terms of influence and ranking in both the international and domestic markets. They must also lead in terms of technical strength.
On the other hand, the following are the conditions for R&D production of the enterprise:
- With core talents engaged in scientific research and production at home and abroad;
- Has an independent intellectual property rights system and core technology;
- Showing the ability to diversify core suppliers in the industrial chain and upgrade domestic industries;
- With leading or high-end technical capacity in both international and domestic landscape ;
- Possessing R&D achievements adopted by both domestic and international frontline terminal equipment manufacturers;
- Carried out substantive cooperation in terms of capital, scientific research, projects, etc.;
- Funded by national or provincial governments and well-known financing institutions.
Requirements for eligibility
To apply for eligibility for the preferential tax, enterprises should submit the following documents to the municipal tax bureau:
- Copy of business license;
- Proof of substantive production or R&D activities (such as project filing documents in the new area, land or business site use, lease certificates, environmental assessment filing materials, etc.);
- Certifications such as technical level certification documents, enterprise management capabilities certification documents, etc.;
- A letter stating the authenticity of the materials and supporting documents for the declaration of tax preference eligibility;
- A letter of authorization for a corporate credit inquiry, etc.;
- Other related materials.
Administrators of the Lingang New Area or the management committee will review the correctness of the material submitted by the enterprises. Furthermore, they must ensure that the enterprises meet the required score of 60 points or more in terms of accreditation. The management will submit the enterprise application to Shanghai’s Economic Information Commission.
Shanghai’s Municipal Economic and Information Technology Commission shall appoint experts to conduct the final review of eligible key enterprises in the Lingang New Area. Finally, the Municipal Finance Bureau, the Municipal Taxation Bureau, and the New Area Management Committee of the Lingang New Area will issue a public document with the list of qualified enterprises.
For the qualifications of experts who will be appointed for the review process, please refer to the Shanghai Caifa [2020] No. 12. Accordingly, companies registered from January 1, 2016, to December 31, 2019, can also enjoy the preferential taxes from 2020 as to the date of establishment.
Source: Shanghai officially launches new FTZ, Lingang Special Area, CGTN News
Other policies for the Lingang New Area
The establishment of the Lingang New Area is one of the most recent developments in Shanghai’s Free Trade Zones. The city government of Shanghai aims to make the area a technology and manufacturing hub to attract more flow of foreign investments. Moreover, the new area has also received greater attention from the national government, Thus, it has gained a number of special incentives and policy support for overseas talents.
Read our previous post about Special Incentives for Overseas Talents in Shanghai
Shanghai’s Municipal Government does not only continue to implement measures on preferential tax rates. It also promotes the streamlining of business procedures, supervising custom activities, and enhancing cross-border payments or flow of capital for investments.
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