China Revises Income Tax Incentives for Software and Integrated Circuit Manufacturers

(Sunnyvale, CA) – China has revised the enterprise income tax incentives for software and integrated circuit (IC)companies as per a notification released jointly by the Ministry of Finance and the State Administration of Taxation (SAT).

The tax incentives are applicable from January 1, 2011 to December 31, 2017. During this period, software and IC manufacturers are exempt from enterprise income tax (EIT) for initial two years (starting from the first profit-making year). Also, a reduced EIT rate of 12.5% would apply for the following 3 years.

The new tax incentives are applicable to:

Certified integrated circuit enterprises that manufacture circuits with a line width not more than 0.8 microns (inclusive of 0.8 microns).
Certified enterprises manufacturing ICs with a width not more than 0.25 microns (inclusive of 0.25 microns) or those who have invested over CNY 8 billion in the industry, if the operation of such industry exceeds 10 years (Certified enterprises functioning for not more than 10 years will be subject to EIT of 15%).
Start-up software and IC enterprises certified by the government in China.
For certified key software enterprises recognised under the state’s plan, a 10 percent EIT rate is available.

VAT Incentives for Software / IC Companies

As per a notice issued in 2011, certified software or IC enterprises are eligible to claim refund on the part of VAT exceeding 3% of the VAT paid. However, the refunded amount will be exempt from EIT, if the refunded amount is reinvested in the Research and development or on expansion activities.

Cost of employee training by certified software and IC design enterprise will be deductible for EIT purposes. Purchased software is allowed to be depreciated within 2 years and IC machinery within 3 years.

Requirements to Claim EIT Incentives

To be qualified for incentives, certified software and IC design enterprise have to comply with the requirements in terms of sale revenue, academic standard of workforce, number of employees engaged in research & development activities, ownership of core technology and intellectual property, quality management system, suitable infrastructure and machineries for production.

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This release was published on openPR.