Article by：ECOVIS Beijing     Richard Hoffmann
Last Updated：2014-06-23

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Tax incentives in China
 
China offers several tax reductions in order to stimulate related industries and regions. In this article, we outline the major tax incentives in China.
 
1.  High and New Technology Company(HNTE)
 
The company must be a resident of China for over one year and also owns intellectual property for core technologies used in their products or gives their Chinese subsidiaries a global exclusive license for at least 5 years. Also a sufficient R&D department is a must and needs qualified personnel. At least 10% – 30% of them must have obtained a bachelor degree or above. Besides the company must develop in one of these areas:
 
- Electronic information technology
- Biological and new pharmaceutical technology
- Aviation and aerospace technology
- New material technology
- High technology service industry
- New energy and energy conservation technology
- Resources and environmental technologies
- High and new technology for traditional industries innovation
- The HNTE status is granted by provincial tax authorities for companies located in those provinces. It offers a tax reduced rate of 15 % and is valid for three years. It can be renewed every three years.
 
2.  R&D Expenditures
 
Another reduction can be made is with the R&D expenses incurred in the development of new technologies, products and processes as far as it is not an intangible asset. The super deduction can be an additional 50% from the R&D expenses. Requirements are HR personnel cost, costs for evaluation of R&D results, clinical trial costs, maintenance testing & repair cost, samples and models & testing equipment cost.
 
3. Salary of Disabled Personnel Cost
 
An additional 100% of salary expenses paid to disabled personnel can be deducted from taxable income.
 
4. Fixed Assets
 
- Fixed assets susceptible to fast obsolescence due to technological progress.
- Fixed assets in the state of strong vibration and high corrosion throughout the years. In the case of adapting a shorter-period depreciation method, the minimum term of deprecation shall not be less than 60% of the depreciation duration as set forth in article 60. In the event of using an accelerating depreciation method, fixed assets shall be depreciated using the double declining balance method or sum of the years digits method method.
 
5. Small or Low Profit Enterprises
 
In order to fulfill the requirements, an enterprise must have less than 300,000 RMB in annual taxable income, less than 10 million RMB in total assets, less than 80 employees and not be engaged in prohibited or restricted industries. An exception is provided for manufacturing companies, which may have less than 100 employees and a maximum of 30 million RMB in total assets. For small or low profit enterprises the tax rate is 20%, but you can get an additional 50% CIT reduction if you have less than 60,000 RMB annual taxable income.
 
6. Income Subject to Tax Reduction or Exemption
 
- Agriculture, forestry, animal husbandry and fishery project income are exempt.
- Infrastructure projects and environmental protection, energy and water saving investments are exempt for the first three years, and enjoy three years of 50% reduction afterwards.
- Technology transfer income is exempt up to 5 million RMB annually and a 50% reduction for any amount which exceed 5 million RMB.
 
7. 15% Tax Rate for Western Regions
 
Companies in western regions such as Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shaanxi, Gansu, Ningxia, Qinghai, Xinjiang, Inner Mongolia and Guangxi can profit from the reduced tax rate.
 
In order to benefit from all tax incentives in China and file your CIT according to the regulations, you should consult a tax advisory. There are also other areas you need to consider when doing CIT compliance. 

 
You are welcome to contact the author (s) if you have any questions aboutTax incentives in China. 

All rights reserved by the original copyright holder. The contents of this article are intended to provide a general guide to the subject matter Tax incentives in China and should not be treated as a substitute for specific advice concerning individual situations. Readers should seek legal advice before taking any action with respect to the matters discussed herein.