10 tax breaks for tech companies investing in China

Tuesday, December 06, 2011 | Posted by: Nick Farr
Categories: China | Tags: tax, China, technology, tech, IT, benefits, incentives, exemptions, R&D, environment, software, Enterprise Income Tax Law, hi-tech, business tax, West China, CIT, economic zones, deductions, Shanghai Pudong, corporate income tax

From preferential corporate income tax rates to sector-specific exemptions and attractive location-based tax reductions, China is pulling out the stops to attract international high-technology enterprises. Here’s a summary of the benefits on offer for technology-led UK businesses willing to go the Chinese way.

In looking to position China as a hi-tech manufacturer, the Chinese government has suggested that it will be willing to spend RMB 4 trillion – approximately £387.67 billion – in the next five years on industries that are technology-led.

In addition, the Enterprise Income Tax Law provides incentives that benefit certain hi-tech enterprises. These include good opportunities for UK companies to access lower tax rates, potential tax holidays and exemptions from Chinese business tax.

We’ve listed the 10 areas with favourable tax incentives below, plus a contact for our China Britain Services Group to help you take advantage of them.

1. High/new technology enterprises (HNTEs)

• Corporate income tax (CIT) rate of 15% (instead of 25%).
• Two years’ exemption from CIT and three years’ 50% deduction if established in a special economic zone or the Shanghai Pudong new area.

2. Qualified technologically advanced service companies (TASCs)
Until 31 December 2013, TASCs based in 21 model cities are entitled to:

• 15% CIT rate.
• Business tax exemption (at five per cent) for outsourcing these services to non-Chinese based businesses.

3. Foreign investment in west China

• Reduced 15% CIT rate.

4. Software and integrated circuit industries

• Two-year exemption and three-year 50% deduction from CIT.
• Potential amortisation period of two to three years for tangible or intangible fixed assets.
• Preferential CIT rates for businesses with capital over RMB 8 billion or integrated circuit width of a certain size.

5. Business tax exemption for offshore outsourcing service income

• Business tax exemption up to 31 December 2013 for certain services including IT provided from 21 model cities in China to non-Chinese based businesses.

6. Tax exemption and deduction for technology developed in and transferred out of China

• Exemption for the first RMB 5 million of income generated from the technology transfer.
• 50% deduction for income above RMB 5 million on transfer of technology.
• BT exemption for income closely related to technology transfer and consulting.

7. Enhanced deduction for research & development (R&D) expenses

• 50% enhanced R&D deduction.
• 50% enhanced amortisation for intangibles relating to the R&D.

8. Super deduction for disabled employees

• 200% deduction for disabled employees’ wages.
• Partial VAT refund based on disabled employees’ wages.

9. Recycling business

• 10% deduction on total income.

10. Special deduction on qualifying expenditure of specialist environmentally friendly equipment

• Tax credit based on 10% of the purchase price of special equipment for environmental protection, energy and water saving, and manufacturing safety.

What is the next step?
To find out more about theses tax breaks, contact our China Britain Services Group. Whether you are looking to grow your business by exporting, investing or doing business in China, this dedicated team has the international capability, cultural understanding and partner commitment to help drive your business forward. Contact:

Nick Farr
Partner and Head of China Britain Services Group
T +44 (0)207 728 2691
E .(JavaScript must be enabled to view this email address)

Image: (CC) Martin Fisch

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