Source: IBFD Tax Research Platform News
China has renewed its policy of promoting the development of high-quality integrated circuits (ICs) and software, including tax and other incentives, for the industry.
The main tax incentives announced are as follows:
| Exemption from enterprise income tax | Post-exemption reduced tax rate | Minimum period of manufacturing operations | |
enterprises or projects engaged in manufacturing ICs with a line width of not more than 0.8 microns | first 10 years | none (normal rate of 25%) | 15 years |
enterprises or projects encouraged by the state that are engaged in manufacturing ICs with a line width of not more than 65 nanometres | first 5 years | 12.5% for 5 years | 15 years |
enterprises or projects encouraged by the state that are engaged in manufacturing ICs with a line width of not more than 130 nanometres* | first 2 years | 12.5% for 3 years | 10 years |
enterprises engaged in the design, assemble, materials, packing and testing of ICs, and software enterprises that are encouraged by the state | first 2 years starting from first profit-making year | 12.5% for 3 years | none |
key encouraged enterprises engaged in the design of ICs and software enterprises | first 5 years starting from first profit-making year | 10% | none |
* Losses may be carried forward for 10 years (instead of the normal 5 years).
The tax incentives commence from the first profit-making year of the enterprise or, in the case of projects, the first year in which revenue is derived from manufacturing. A list of enterprises and projects that are eligible for the incentives will be compiled by the relevant ministries.
In respect of indirect taxes:
- the current preferential policy on value added tax (VAT) for ICs and software enterprises in relation to the refund of VAT exceeding 3% of the total VAT burden (thus after offset against input tax) continues to apply; and
- qualified enterprises are exempt from import duties on certain items and key IC projects may be allowed to pay VAT on import of new equipment in instalments.
It is noted that the incentives are available to all ICs and software enterprises established in China that have fulfilled the requirements stated therein, regardless of the source of their investment capital (thus regardless of whether they are state-owned or private, or domestic or foreign invested).
The State Council issued Notice of State Council [2020] No. 8, which came into effect on 4 August 2020 for the above incentives. In addition, Notice of State Council [2000] No. 18 and Notice of State Council [2011] No. 4 remain effective. However, in case of divergence, the provisions of Notice of State Council [2020] No. 8 will prevail.