China continues to expand its high-tech development with its increased spending on the research and development industry. As this happens, the government also constantly modifies its tax incentives to high tech companies to further encourage innovation in this area.
Have a look at our article on China Among World’s Top 15 Innovative Economies
Since 2017, the State Taxation Administration has offered preferential tax treatments for High-and-New Technology Enterprises (HNTEs). It has also further broadened its scope related to tech-based SMEs (TSMEs) and advanced service enterprises. Keep reading!
Incentives on the taxable income of high-tech companies
High-and-New Technology Enterprises are vital for establishing China’s innovative economy. Therefore, China has set tax incentives on the high tech industry as one of its core policies. Taxation authorities have allocated various tax benefits including tax exemption, super deductions, and extension of the loss-carryover period for HNTEs as well as TSMEs.
The following are the details of major tax incentives for HNTEs and TSMEs:
- Reduced CIT rate of 15 percent (previously 25 percent)
- Tax reduction or exemption on income from technology transfer
- 10 years as maximum loss-carryover period (previously 5 years)
- 175 percent super deduction of R&D expenses (previously 150 percent)
Previously, only TSMEs are eligible for the 175 percent super deduction rate. However, the taxation bureau has expanded its applicability to all other enterprises from January 1, 2018, to December 31, 2020.
In May 2019, STA and the Ministry of Finance jointly announced the reduction of CIT for integrated circuit (IC) design and software companies by 50 percent. Announcement 68 stated a two-year exemption and three-year reduction incentive where CIT exemption applies for two years, while the following three years will be 50 percent.
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