Guide - 17 November 2021

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.

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