Guide

Understanding Tax Incentives and Intellectual Property Rights in the Greater Bay Area

What subsidies, tax benefits, and intellectual property protections should overseas investors and global businesses consider when setting up or expanding their presence in South China? Hawksford and Zhong Lun Law Firm explain in this joint article.

The Greater Bay Area (GBA) concept dates back to July 1st 2017 when the Framework Agreement on Deepening Guangdong-Hong Kong-Macao Cooperation in the Development of the GBA was signed by nine municipalities in Guangdong province and the two special administrative regions of Hong Kong and Macao. Creating an integrated business-friendly cluster of cities and spurring growth in emerging technologies and sectors are the main objectives of this strategic initiative.

The Greater Bay Area lays its foundations in the Pearl River Delta, China’s first manufacturing and logistics hub, now being re-invented as an innovation and technology centre. Both local and central authorities are investing heavily in infrastructure, talents and the economy.

In this joint article written by Hawksford and Zhong Lun Law Firm, overseas investors and global businesses will find valuable insights on subsidies, tax benefits, and intellectual property (IP) protections when considering setting up or expanding their presence in South China.

 

Investment and talent attraction

Cities in the GBA already present foreign businesses with subsidies based on the size of their investment and future contribution to the local economy with specific requirements and reward schemes varying on a municipality and sector basis. 

Shenzhen is an excellent example of how the GBA plans to facilitate a business friendly-bureaucratic framework, encouraging multinational companies to establish regional headquarters in its sophisticated environment. If companies meet a precise set of requirements regulating their local and overseas entities’ registered capital and management structure, the approved headquarters are entitled to a reward ranging from 3 million RMB to 6 million RMB.

Over the last few years, Shenzhen has also laid out a series of provisions to simplify the overall company incorporation process, which includes shortening the time of business license issuance to a few working days and introducing company secretary virtual addresses and dormant company status.  

Investors aside, today Shenzhen is also one of the most attractive cities for local and international talents in the new technologies and logistics sectors. The Notice by the Ministry of Finance and the State Taxation Administration of the Preferential Individual Income Tax Policies for Guangdong-Hong Kong-Macao Greater Bay Area (No. 31 [2019] of the Ministry of Finance) has implemented an individual income tax (IIT) subsidy scheme addressed to foreign talents employed in the nine core cities of the GBA.

The policy aims to limit the total IIT burden for the fiscal year to 15% of the yearly taxable income and provide a refund for the exceeding part when meeting a number of specific requirements set by each municipality taking part in the initiative from January 1st 2019 to December 31st 2023.

What corporate income tax benefits does the GBA offer?

Introduced nationwide via Announcement No. 24 [2017] of the State Administration of Taxation, a reduced corporate income tax (CIT) rate of 15% against the standard rate of 25% is granted to high tech enterprises that are eligible for accreditation based on requirements that might vary on a municipal level, based on:

  • Establishment and business scope of the entity (i.e., encouraged industries of investment)
  • IP protection and ownership
  • Research and development-to-revenue ratiopersonnel specialisation-to-total-organic ratio
  • Innovation (graded system)
  • Environmental protection

This regulation finds its best application in the Greater Bay Area. The current infrastructure and supply chain continuously attract new competition in the high-tech field, where Tech giants like Huawei, Tencent, and Foxconn are based.

Startups and small or medium enterprises that might not fall into the above sectors or investment size can still benefit from the beneficial CIT rate granted by Article 2 of The Ministry of Finance and the State Administration of Taxation on the implementation of the inclusive tax relief policy for small and micro enterprises (Caishui [2021] No. 12). This halves the progressive enterprise income tax rate previously set by (Caishui [2019] No. 12) from January 1st 2021 to December 31st 2022, as indicated in the following Table 1.

Table 1: CIT tax rates for small and micro enterprises

Requirements

  • Annual taxable income < 3 million RMB
  • Number of employees < 300 persons
  • Total assets < 50 million RMB

Yearly taxable profits < 1 million RMB:

CIT rate of 2.5% 

1 million RMB < yearly taxable profits < 3 million RMB:

CIT rate of 10% 

Yearly taxable profits > 3 million RMB: CIT standard rate of 25% 

[not eligible for small and micro enterprise status]

The above tax treatment, implemented nationwide, would grant investors access to the GBA infrastructure and environment even when the investment volume and operations are limited during the startup period.

Understanding intellectual property rights in China

With intellectual property (IP) already representing one of the most valuable creative and commercial assets for any business. China’s rapid progress in the value-added chain, the need for a modern IP legal framework has been advocated both from within China and by the foreign business community on the international stage.

In 2020, China revised four IP-related laws and regulations (namely the Patent Law, the Copyright Law, the Criminal Law and the provision on the transfer of suspected criminal cases by administrative law enforcement organs), issued six judicial interpretations (covering commercial secrets infringement, application of laws in infringement disputes, IP-related criminal cases etc.), implemented more than twenty policies, and set two national standards for IP protection (related to IPR on e-commerce platforms and recommended national standards for patent guidance).

With these continuous efforts, China now ranks 14th among 131 economies according to the World Intellectual Property Organisation’s Global Innovation Index 2020. While ranking high in patents registration and the total exports of creative products, China still needs to structure further reforms in areas like human capital, infrastructure, and institutional construction.

The Table 2 below summarises China’s IPR legal framework and important points to consider when dealing with its jurisdiction:

Table 2: China's IPR legal framework

Trademark  Trademark Law of the PRC  Latest Revision: 2019 
  • Trademark ownership is based on the first-to-file system. To discourage “trademark squatting,” trademark applications that are malicious and not filed for the purpose of use shall now be refused (Article 4).
  • Any foreign investor wishing to register a trademark in China shall do so through a qualified trademark agency (Article 18).
Patent  Patent Law of the PRC  Latest Revision: 2020 
  • Partial designs or designs apart of a product are now included in the definition of design with the additional wording “of the whole or a part of” a product (Article 2).
  • Duration of rights for design patents has been extended from ten to fifteen years (Article 42) in line with international practices.
  • The new open license system allows the patent owner to license any individual or entity their patent (Article 51). 
Copyright  Copyright Law of the PRC  Latest Revision: 2020 
  • Use of the wording “audio-visual works” (Article 3) to cover new types of audio-visual works, such as short videos and online game graphics.
  • Amendments to the rights covered by the term “copyright” (Article 10) to reflect recent technological developments.
  • Additional legal liabilities and penalties in case of copyright infringement are added in the latest revision. 

Navigating intellectual property rights’ protection in the Greater Bay Area

Among the challenges and opportunities lying in the Greater Bay Area for foreign investors, the biggest might be navigating multiple municipal and regional jurisdictions. It is quite common for foreign investors to set up a Hong Kong holding company (under Hong Kong laws) for foreign exchange and tax purposes and a PRC Wholly Foreign-Owned Enterprise (under PRC laws) 100% owned by the Hong Kong holding company for handling operations and the employment of local staff. While setting up entities in different jurisdictions can be a good strategy at the corporate level, it can create challenges for IP protection.

More than contractual or corporate matters, IPR territoriality is decisive. Besides rare exceptions (such as so-called "well-known marks"), the registration of trademarks, patents or copyrights in one jurisdiction grants little to no other rights in other jurisdictions. Therefore, a rights owner’s IP protection strategy across the Greater Bay Area must be assessed case by case according to the rights owner’s interests and anticipated use.

The Table 3 below outlines the main differences among the three jurisdictions within the GBA.

Table 3: Differences between the three jurisdictions

  Mainland China  Hong Kong SAR  Macao SAR 
Main applicable laws  Trademark Law, Copyright Law, Patent Law, and numerous administrative measures The Trade Marks Ordinance and Trade Marks Rules The Industrial Property Code of Macao
Official languages  Mandarin Chinese Mandarin Chinese, English Mandarin Chinese, Portuguese 
Trademarks 
Scope of trademark protection  Word(s) (combination of letters or characters), design, letter, numeral, 3D symbols, and colour combination. Word(s), personal names, indications, designs, letters, characters, numerals, figurative elements, colours, sounds, smells, a shape of goods or packaging. Word(s), numerals, sounds, a shape of goods or packaging, designs, patters, colours, or any combination of the above. 
Classification of goods and services  Based on the International Classification of Goods and Services (Nice Classification), but with sub-classes. Based on the International Classification of Goods and Services (Nice Classification). 
Validity  10 years beginning on its date of approval of the application. 10 years beginning on its date of registration. 7 years beginning on its date of registration.
Patents 
Mutual recognition of patents within the GBA  Yes, a standard patent can be registered in one jurisdiction after it has entered the PCT (Patent Cooperation Treaty) within 6 months after registration in the other jurisdiction. Only under the 1883 Paris Convention (i.e., the patent must be registered within 12 months after invention). 
Copyrights 
Duration of legal protection  Until 50 years after the death of the author. Until 50 years after the death of the author or after the date of production. Depending on the production, until 25 or 50 years after the death of the author or after the date of production. 

The Greater Bay Area represents a privileged business destination for domestic and foreign companies operating in finance, logistics, innovation and technology, and capital-intensive industries. The differences of regulations among the three jurisdictions in legal, accounting and tax perspectives, however, add a level of complexity at the same time. 

In light of this, companies should carefully plan an entry strategy in the GBA, evaluating all the necessary resources and steps, including how to leverage synergies and incentives in the area, how to comply with the local tax requirements, how to hire the right and qualified personnel while protecting competitive advantage and key IPR. Working with a trusted partner with local expertise will help you better navigate China’s booming market.

How Hawksford can help

Hawksford is an established provider of company registration and outsourced corporate services in China. In the last decade, we have assisted companies from a wealth of sectors to successfully start a business in the Greater Bay Area. We ensure that our clients will have the right business structure and the operation is compliant with local regulations. 

We can help you from Guangzhou, Shenzhen, and Hong Kong, where we have more than 90 multilingual professionals speaking 8 languages. We communicate with your local operations team and global management team in your native languages. Whether your business is in one of the mainland cities or a special administrative region, a dedicated account manager will be assigned to take on the burden of liaising with different parties and deliver efficient communications with you through one window.

How Zhong Lun can help 

Founded in 1993, Zhong Lun Law Firm quickly became a leading Chinese law firm with 18 offices worldwide and more than 2400 professionals. With offices in Guangzhou, Shenzhen and Hong Kong, we are well positioned to serve a wide range of clients, from large multinationals to small-to-medium enterprise, on the whole scope of corporate law in the GBA. We provide high-quality, efficient and practical legal advice and services on international trade, corporate, mergers & acquisitions, labour & employment, intellectual property and litigation & dispute resolution. With a strong entrepreneurial spirit, Zhong Lun partners join their clients at the front lines to help them navigate the complexities of the Chinese market. 

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