China has enhanced the promotion of high-quality development of the integrated circuit (IC) and software industry. These industries are the core of the information industry and the key forces leading a new round of technological revolution and industrial transformation which can attract foreign and domestic investments in China.
Have a look at our previous article on New Regulations to attract Foreign Investments in China
Among the support policies implemented are tax exemptions and other policies that encourage players of the industry to improve innovations within their field. China is encouraging the high-quality development of the industry to allow further expansion of companies amid China’s growing fast-paced global economy.
Encouraging developments in the software and integrated circuit (IC) industry
Previous policies have highlighted clarifications citing that all integrated circuit companies and software enterprises established in China, regardless of the nature of the ownership, can enjoy relevant policies. This is to encourage and promote global cooperation between the IC industry and the software Industry. Moreover, the creation of a market-oriented, legalized, and globalized business scenario is very enticing for domestic and foreign market players to invest in China.
Have you read? IC and Software Enterprises to Enjoy Tax Exemptions
New incentives
Tariff exemption on imports
According to the recent announcement from the State Taxation Administration, certain institutions and items can be listed for “tariff-exempt imports” which will apply from July 27, 2020, to December 31, 2023.
Below is the list of institutions and items where tariff exemption is applicable:
- Integrated circuit manufacturers, advanced packaging and testing enterprises, and manufacturers of key raw materials and spare and accessory parts for the IC industry
- Key IC design enterprises and software enterprises encouraged by the STA
- Self-use raw materials and consumables for production, special building materials for clean rooms, supporting systems, and spare and accessory parts of IC production equipment that cannot be produced domestically or cannot meet needs in terms of performance
Different branches of the government are working together to come up with particular lists to fulfill the above policies. These departments include:
- National Development and Reform Commission
- Ministry of Industry and Information Technology
- Ministry of Finance
- General Administration of Customs
- General Administration of Taxation
Installment of import VAT
The National Development and Reform Commission (NDRC), together with the Ministry of Industry and Information Technology (MIIT) shall formulate standards for major IC projects that can enjoy VAT on imported new equipment. Enterprises need to meet the conditions and standards for major integrated circuit projects to be eligible for the installment payment of import VAT on imports of new equipment.
The Ministry of Finance (MoF), together with the General Administration of Customs (GAC) and the General Administration of Taxation (GAT), shall determine the installment plan for major projects of integrated circuits. They shall also notify relevant provincial departments regarding the installment policy. The details of the said plan include:
- Name of the project;
- Name of the construction enterprise;
- The start and end time of the installment tax payment; and
- The total tax amount in installments, the quarterly tax amount, etc.
Other tax incentives for technology innovation
Under the 14th Five Year Plan period (January 1, 2021, to December 31, 2025), import duties, import VAT, and consumption tax may be exempt for certain items for scientific research, technological development, and teaching imported by qualified scientific research and technological institutions. This applies given that domestic manufacturers cannot provide or meet performance requirements for such items.
Documentation for IC and software industry preferential tax application
A strict review of supporting materials and documents is required to determine if a company will be able to avail of the preferential tax rate or tax incentives. Companies must file the necessary information on the system which the local department/s review. The following materials may be included in the review:
- Company contract list;
- Specific equipment models;
- Research and development personnel; and
- Other materials involving trade secrets.
Submitting these requirements may be mandatorily submitted in paper and electronic form to the local Provincial Development and Reform Commission, or the competent Department of Industry and Information Technology.
According to the regulations on optimizing the business environment, companies only need to submit paper materials to one department. For specific submission methods, please consult the local development and reform department.
Other requirements for industry development
The above-mentioned government agencies have also set forth policies that require strict observation from IC and software companies so they can meet higher standards and achieve high-quality development. This announcement put forth design, equipment, materials, packaging, and testing requirements that companies need to meet.
Particularly, the announcement made clear requirements for the number of employees, the proportion of employees’ education, the proportion of operating income, the total income of the enterprise, the number of authorized invention patents, and the proportion of R&D expenses in integrated circuit design, equipment, materials, packaging, and testing companies. However, the State has made different requirements according to the categories in which certain companies belong in.
For example, IC design companies have higher requirements than those companies under the categories of IC equipment, materials, packaging, and testing. This is true especially in terms of employee education and the proportion of annual R&D. It is recommended to avail of local business consultancy services for further details.
Conclusion
Enhancing the promotion of high-quality development of the IC and Software Industry will further establish China’s goal of developing economically. With the encouraging policies that benefit both foreign and domestic investors, the outlook for these industries in the coming years seems positive.
Despite the strict implementation of requirements and paperwork involved before companies are able to avail of some of the benefits mentioned, these preferential tax rates and tax incentives are available for any company willing to dive into the process involved. Moreover, with the acceleration of the Chinese economy, it is always beneficial in the long run to take advantage of preferential policies. It is a sure way of staying ahead of the market competition in a highly competitive industry. Not only that but looking to the future, developments to the industry will further improve the market’s impression of Chinese products, services, and companies to become “high-quality” in today’s global economy.
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