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High-tech Industry

High-tech Industry

I. High-tech Industry in Guangzhou Payment of Business Tax Can be Exempted for Four Kinds of Income

The Guangzhou Municipal Local Taxation Bureau promulgated Guidelines on Local Preferential Tax Policies for Encouraging the Independent and Innovative Development of High-Tech Industry (hereinafter referred to as the Guidelines) on April 10, 2008 to present the preferential policy on businesstax exemption from four high-tech industry incomes.

1. Scientific research institutes' incomes from technology transfer

Interpretation: To encourage the introduction and promotion of technologies, the payment of business tax can be exempted for incomes gained through technology transfer.  "Technology transfer" herein refers to the compensatory transfer of patent or non-patent technologies.

If the scientific research institutes want to transfer technologies and apply for business tax exemption, they should take out the certificates of the recognition and registration of technology contracts issued by administrative institutions at all levels on the technology market to register with the tax authorities.

2. Units and individuals' incomes from technology transfer consultation

Interpretation: Incomes that units and individuals gain through technology transfer and development or technical consulting or other technical services related to technology transfer and development may be exempted from the business tax.

According to regulations, payment of the business tax can be exempted for incomes obtained by units and individuals (including foreign-funded enterprises and R&D centers, and foreign enterprises and individuals) from technology transfer and development or technical consulting or other technical services related to technology transfer and development.

Technical consulting or other technical services related to technology transfer and development refers to technical consulting or other technical services provided by the transferor (or the consignee) to help the transferee (or the consigner) understand the transferred technologies (or the technologies developed according to the cornrnission). Additionally, the expenses for such technical consulting and services and the expenses for technology transfer (or development) should be listed on the same invoice.

※ Explanation of technical terms

Technology transfer: refers to the action where the transferor transfers his/her ownership or use right of patent or non-patent technologies to others with an aim of earning the transfer fee.

Technology development: refers to the action where the developer is entrusted by other persons to research into and develop the new technologies, products, processes or materials as well as systems concerned.

Technical consulting: refers to the feasibility demonstration, technical forecasting, surveys of topic technologies, and analytic and assessment reporting.

3. Rental incomes of eligible science and technology parks

Interpretation: Accordmg to the regulations, from January 1, 2008 to December 31, 2010, payment of business tax can be exempted for incomes gained by eligible national large-sized science and technology parks of universities from the lease of sites and houses to incubated enterprises and the provision of incubation services.

Science and technology parks that want to enjoy the above preferential policy should meet the following requirements:

(1) The establishment and operation of science and technology parks should be in conformity with the recognition and administration regulations issued by the administrative authorities of science and technology and education of the State Council, be recognized by such authorities and gain the qualification of national science and technology parks of  universities;

(2) Financially, the incomes that science and technology parks obtain from the lease of sites and houses to the incubated enterprises and the provision of incubation services should be calculated under independent accountmg.

(3) The area provided to the incubated enterprises should account for over 60% (including 60%) of the total area dominated by the science and technology park and the number of incubated enterprises should represent more than 90% (including 90%) of the total number of enterprises in the park.

The above-mentioned "incubated enterprises" should meet the following requirements:

(1) The place of registration and the office location of incubated enterprises must be in the science and technology park;

(2) The "incubated enterprises" that belong to new registered enterprises or the enterprises applying for entering the science and technology park should be established less than three years;

(3) The incubated enterprises' incubation period should not be over three years;

(4) The registered capital of incubated enterprises should be not more than 5 million yuan;

(5) If enterprises that are not established in the park want to enter the park to become incubated enterprises, their operating revenue in the previous year should not be more than 2 million yuan;

(6) The area of incubation site leased by the incubated enterprise should not be more than l,000 square meters;

(7) The projects or products incubated enterprises study, develop and produce should be covered by the Catalogue of Chinese High-Tech Products promulgated by the Ministry of Science and Technology and the incomes from those projects or products should represent over 50% of the annual revenue of the incubated enterprises.

4. Rental incomes of eligible incubators for high-tech enterprises

Interpretation: Accordmg to regulations, from January l, 2008 to December 31, 2010, the incomes of the eligible incubator for high-tech enterprises (also called high-tech incubation service center, hereinafter referred to as "the incubator") coming from the lease of sites and houses to incubated enterprises or the provision of incubation services can be free of the busmess tax. Incubators that wish to enjoy the preferential policy of business tax exemption should meet the following requirements:

(1) The establishment and operation of the incubators should be in line with the recognition and adrninistration regulations issued by the administrative authorities of science and technology of the State Council, be recognized by such administrative authorities and obtain the qualification of national high-tech incubation service center;

(2) Financially, the incomes that incubators obtain from the lease of sites and houses to the incubated enterprises and the provision of incubation services should be calculated under independent accounting;

(3) The area provided to the incubated enterprises should account for over 75% (including 75%) of the total area dominated by the incubator and the number of incubated enterprises should represent more than 90% (including 90%) of the total number of enterprises in the incubator.

The above-mentioned "incubated enterprises" should meet the following requirements:

(1) The place of registration and the office location of incubated enterprises must be in the incubator;

(2) The "incubated enterprises" that belong to new registered enterprises or the enterprises applying for entering the science and technology park should be established less than three years;

(3) The incubated enterprises' incubation period should not be over three years;

(4) The registered capital of incubated enterprises should be more than 2 million yuan;

(5) Enterprises not established in the incubator but wanting to enter the park to become incubated enterprises,should have operating revenues of not more than 2 million yuan in the previous year;

(6) The area of incubation site leased by the incubated enterprise in the incubator should not be more than l,000 square meters;

(7) The projects or products incubated enterprises study, develop and produce should be covered by the Catalogue of Chinese High-Tech Products promulgated by the Ministry of Science and Technology and the incomes from those projects or products should represent over 50% of the annual revenue of the incubated enterprises.

II. 29 Articles of Tax Policy on Boosting the Development of Independent Innovative and High-Tech Industries

1. To Encourage High-Tech Industry supported by the State

(1) In terms of the high-tech enterprises supported by the State, the corporate income tax shall be levied at the reduced tax rate of 15%.

(2) High-tech enterprise and project bonuses or stock bonuses distributed to the employees that are directly reinvested in enterprise production and operation are exempted from personal income tax. Those that are awarded or distributed to employees in the form of stock bonuses in the following years after the due terms and directly reinvested in enterprise production and operation, may enjoy personal income tax exemption only upon the approval of local tax authorities in question.

2. To Encourage the Software Industry

(3) The start-up software enterprises that are acknowledged within the territory of the People's Republic of China shall be exempted from corporate income tax in the first two years commencing on the profit-making year and shall halve such corporate income tax between the third and the fifth year.

(4) The tax payments that are refunded after the tax authority levies the value-added tax of the software enterprises shall be applied to research and development of software products and extended production instead of being deemed as the taxable income and thus shall enjoy such corporate income tax exemption.

(5) The key software enterprises under the national planning are imposed on a 10% off rate of corporate income tax on the condition of having not enjoyed a tax -free preference.

(6) The staff training costs of the software enterprises shall be deducted from the taxable income in accordance with the actual amount.

(7) All the software purchased by enterprises and public institutions may be accounted either as fixed assets or intangible assets provided that such software meet the confirmed conditions of fixed assets or intangible assets. Upon the approval of the tax authorities in question, the depreciation or amortization life may be shortened appropriately, which can be as short as two years.

(8) In the case where foreign enterprises sell software separately or assign related software matchable to such goods as postal and communications equipments to enterprises within the territory of the People's Republic of China, the software royalties paid by such domestic assigned enterprises shall not include the business tax of foreign enterprises in cases where these domestic assigned enterprises have submitted the tariff and importation value-added tax.

3. To Encourage the Integrated Circuit Industry

(9) Tax payments that are refunded after the tax authority levies the value-added tax of the integrated circuit design enterprises, shall be applied to research and development of software products and extended production instead of being deemed as the taxable income, and thus shall enjoy corporate income tax exemption.

(10) An acknowledged integrated circuit design enterprises shall be exempted from corporate income tax in the first two years commencing on the profit-making year, and shall halve such corporate income tax between the third and the fifth year.

(11) The staff training costs of the integrated circuit design enterprises shall be deducted from the taxable income in accordance with the actual amount.

(12) Upon the approval of the tax authorities in question, the depreciation life of production equipments of integrated circuit enterprises may be shortened accordingly, to as low as three years.

(13) Integrated circuit enterprises whose investment exceeds RMB 8 billion yuan, or whose product line is less than 0.25 micron, may be levied the corporate income tax at the reduced tax rate of 15%. Those that manage to operate for over 15 years shall be exempted from corporate income tax between the first and the fifth year, commencing on the profit-making year and such corporate income tax shall be halved between the sixth and the tenth year.

(14) The integrated circuit enterprises whose product line is equal to or less than 0.8 micron, upon acknowledgement, shall be exempted from corporate income tax in the first two years commencing on the year when they reap profits and such corporate income tax shall be halved between the third and the fifth year.

4. To Encourage the Investment in Integrated Circuit Enterprises, Packaging enterprises and Software Enterprises

(15) Between January 1, 2008 and the end of 2010, where an investor of integrated circuit enterprises and packaging enterprises invests its after-tax profits directly into such enterprises for increasing the registered capital of such enterprises or employs such after-tax profits as start-up fund to establish other integrated circuit enterprises and packaging enterprises with the operating period not less than five years, 40 per cent of the corporate income tax amount already charged on the reinvested portion shall be refunded there forth. In the case that such investment is divested within the five-year term, the refunded corporate income tax payment shall be pursued.

5. To Encourage Enterprises to Be Water and Energy Conservation

(16) Ten per cent (10%) of the investment amounts of special devices for water and energy conservation that are actually purchased and put into operation shall be offset against the taxable amounts due in the same year. In the event that such taxable amounts are insufficient to be offset, such investment amounts may be offset in the next five tax years in a carry-over manner.

(17) The income earned from eligible water and energy conservation projects shall be exempted from corporate income tax in the first three years commencing on the tax year when such projects seek the first operating income and such corporate income tax shall be halved between the fourth and the sixth year.

6. To Encourage Technology Transfer

(18) Where the income earned from technology transfer by resident enterprises do not exceed RMB 5 million yuan, such proportion shall be exempted from corporate income tax; the proportions that exceed RMB 5 million yuan shall be imposed on a half income tax.

(19) Where any unit or individual (including foreign invested enterprises, foreign-funded research and development centers, foreign enterprises and foreign individuals) engages in technology transfer and other related technology consulting as well as technology service, income earned therefrom shall be exempted from business tax.

(20) Where any unit or individual (excluding foreign invested enterprises, foreign-funded research and development centers, foreign enterprises and foreign individuals) enjoy business tax exemption, they shall also be exempted from such complementary tax as urban maintenance and construction tax and education surtax attached to business tax.

7. To Encourage Technical Progress

(21) Where the fixed assets of enterprises are in need of accelerated depreciation as the result of technical progress, the depreciation life may be shortened or accelerated depreciation adopted. In the case of shortened depreciation life, the minimum depreciation limit shall be no less than 60% of depreciation life as stipulated in Article 60 of Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China. In the case of accelerated depreciation, double declining balance method or digits depreciation method may be adopted.

(22) Commencing on July 1, 1999, where scientific research institutions and colleges and universities transfer the technological achievements into such equity forms as shares or proportions of capital contribution awarded to individuals, such individuals shall not be imposed on personal income tax for the transferred shares and proportions of capital contributions; whereas personal income tax shall be paid on the condition that profits are gained by shares or proportion of capital contribution or interests or transference of shares or proportion of capital contribution.

8. To Encourage Research and Development of New Technologies, Products and Process

(23) Where costs incurred by research and development of new technologies, products and process have not been included in the current profits and losses as intangible assets, 50% of such costs for research and development shall be super-deducted in addition to the actual deduction as stipulated. In the case that such costs have been deemed as intangible assets, 150% of the intangible asset costs shall be amortized.

9. To Encourage Comprehensive Utilization of Resources

(24) Where enterprises comprehensively utilize the resources and manufacture products that meet the requirements of national industrial policies, the taxable amount shall be deemed as 90% of such income.

10. To Encourage Safety Production

(25) Ten per cent (10%) of the investment amounts of special devices for safety production that are actually purchased and put into operation, shall be offset against the taxable amounts due in the same year. In the event that such taxable amounts are insufficient to be offset, such investment amounts may be offset in the next five tax years in a carry-over manner.

11. To Encourage Individuals to Engage in Scientific and Technological Research

(26) Personal bonuses of science and technology awarded to individuals by the provincial government, ministries of the State Council and People's Liberation Army and other units above, as well as foreign organizations and international organizations, shall be exempted from personal income tax.

(27) Where individuals transfer the copyright, business tax shall be exempted.

12. To Encourage Technology Development and Related Technology Consulting and Technical Services

(28) Where any unit or individual (including foreign invested enterprises, foreign-funded research and development centers, foreign enterprises and foreign individuals) engages in technology development and other related technology consulting as well as technology service, income earned therefrom shall be exempted from business tax.

13. Foreign Invested Enterprises Engaging in Independent Innovation and High-Tech Enjoy Urban Real Estate Tax Reduction and Exemption

(29) Where foreign invested enterprises which engage in independent innovation and high-tech have difficulty in tax payment upon the expiration of urban real estate tax exemption, they may enjoy regular reduction of urban real estate tax upon the approval of the tax authorities at the municipal and county level.

14. Tax preferential policies stipulated in the new taxation rules shall prevail after the national reform of tax system.

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