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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.
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.
A company must meet the following conditions to become a certified high-tech enterprise:
Gaining certification for a high-tech enterprise can be divided into three steps:
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.
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.
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.
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