Tax incentives for high and new-technology enterprises (HNTEs) in China

The Chinese government continues to offer tax incentives encouraging the development of high and new technology (HNTE), innovation, and research and development (R&D). In the Notice, released by the Ministry of Science and Technology, the government outlines its aims to promote an open and transparent business environment, attract more foreign investment in high-tech industries, and encourage foreign companies to apply for high-tech enterprise certificates.

This article aims to provide foreign companies in the technology sector with a basic understanding of the preferential tax rates on corporate taxable income for high and new-technology enterprises (HNTEs), the eligibility for HNTEs, and the certification procedure.

Tax incentives for HNTEs

Qualified high-tech enterprises may enjoy a preferential corporate income tax (CIT) rate of 15%, which is 10% lower than the statutory CIT rate.

Enterprises are entitled to the tax preferences from the year when they officially obtain the high-tech enterprise certificate. The potential losses of qualified HNTEs that occur five years prior to the year they become certified shall be allowed to be carried forward to subsequent years. Qualified HNTEs can carry forward a maximum ten-year period, which is an additional five years in comparison to ordinary enterprises.

Certification conditions for an HNTE

A company must meet the following conditions to become a certified high-tech enterprise:

• The enterprise has been registered in the Chinese mainland for more than one year when applying for certification;
• Its products or services fall within the scope as prescribed in the High-tech Fields under the Key Support of the State, which can be summarized into eight main categories:
  • Electronic information technology
  • Biological and medical technology
  • Aviation and space technology
  • New materials technology
  • High-tech services
  • New energy and energy conservation technology
  • Resources and environmental technology
  • Advanced manufacturing and automation;
• The enterprise owns the intellectual property (IP) rights for the core technology of its key products or services through independent R&D, transfer, donation, merger, and acquisition, etc.;
• The number of technical personnel engaged in R&D and relevant technology innovation activities accounts for at least 10% of the total number of employees for the current year;
• The proportion of R&D expenditure against the total revenue in the past three fiscal years meets the following requirements:
  • Where revenue is less than CNY 50 million, R&D expense must not be less than 5%
  • Where revenue is between CNY 50 million and CNY 200 million, R&D expense must not be less than 4%
  • Where revenue is more than CNY 200 million, R&D expense must not be less than 3%;
• The enterprise’s revenue from high-tech products or services shall account for not less than 60% of its total revenue in the latest year;
• The evaluation of innovative capability shall meet the corresponding requirements; and
• No significant safety, quality accident or serious environmental violations occurred in the year before the enterprise applies for certification.

HNTE certification procedure

How to get a high-tech enterprise certificate

Gaining certification for a high-tech enterprise can be divided into three steps: 

• Application submission
• Expert review
• Examination and certification.

Enterprises are to complete the first step themselves, while the second and third steps are to be undertaken by the Ministry of Science and Technology (MST), the Ministry of Finance (MOF), the State Administration of Taxation (SAT) and subordinating leadership group, who will collectively guide, administer, and supervise the application for certification.

1. Firstly, companies should self-evaluate to see if they meet the above requirements. Once the company satisfies the certification requirements, it may register via the government online portal and apply for certification. Meanwhile, companies need to submit the hardcopy of the required documents to the certification authority.
2. The certification authority shall randomly select qualified technical and financial experts to form an expert team. The expert team will review the application and give their assessment.
3. The certification authority will then conduct a comprehensive examination in light of the review from the expert team and submit their assessment to the leadership group. The certified enterprise will be listed on the official website for ten working days for public comments. If no objections are raised by the public, the certification authority will issue a ‘High-tech Enterprise Certificate’ to the company. The certification result will also be released on the official website. The certificate will be valid for three years from the date of issuance.

Key considerations when applying for an HNTE certificate

As obtaining a certification is entirely subject to approval from the authorities, and the benefits may not outweigh the administrative costs and efforts, some companies may decide not to apply for a HNTE certificate.

Once certified as a high-tech enterprise, companies will need to fill out a statement on their annual developments and submit it to the certification authority each year, including information about intellectual property rights, scientific and technical personnel, R&D expenditure, revenue, etc. While companies can submit these documents online, this can still take considerable time and effort. There may also be cases where businesses are requested to provide certain IP-related information, which some multinational corporations may be reluctant to disclose.

Companies should therefore carefully plan and ensure, on a case by case basis, that the incentives will offset the reporting and administrative burdens before they apply for an HNTE certificate.

How can we help?

Hawksford is an established international service provider of company registration and outsourced corporate services with extensive expertise in Asia. We have more than ten years experience in providing reasonable and practical solutions to help our clients from a variety of sectors to achieve tax balance, while ensuring they remain compliant with local regulations.

Our dedicated and professional team based in the Chinese mainland offers international companies local knowledge and good practice in applying for tax incentives. We are able to assist with self-evaluation, online application, preparation of documents, liaison with the authorities and other administrative processes involved in the procedure of HNTE certification.