China extends tax preferential policies for software and integrated circuit industries

published on June 6, 2019 | reading time approx. 2 minutes

On May 22, 2019, the Chinese Ministry of Finance and the State Administration of Tax jointly published the continuation of tax preferential policy for software and integrated circuit industries.

This is actually not a brand new tax policy. As early as in 2012, China’s financial and tax departments have already implemented the tax incentives for integrated circuit and software industries, and made different preferential policies based on the enterprises’ products and investment status. As these policies ended at the end of 2017, China decided to extend the encouragement and support for these industries.

According to the announcement, qualified enterprises engaged in software and integrated circuit industries are entitled to a Corporate Income Tax (“CIT”) exemption for the first and second year and shall be levied at half of the statutory rate of 25 percent for the third through fifth year thereafter until the expiration of the preferential period, which shall be calculated from the profit making year to December 31, 2018. During CIT annual filing, the enterprises shall determine by themselves if they are qualified to enjoy the tax preferential policy, and submit supplement documents to the tax authority after the completion of annual filing.

Since State Administration of Tax has already set tax incentives for newly established integrated circuit enterprises in 2018, the new policy only has impact on the enterprises established before 2018. The impacts are summarized as follows:

(1) For the qualified enterprises that started to make profit in 2018, the new policy makes them eligible for the preferences: e.g. Company A was established in 2016 and  started to make profit in 2018 for the first time, then Company A is eligible for the tax preferences extended by the new policy from 2018;

 
(2) For the enterprises whose 5-year preferential period has not expired by 2017, they are able to continue enjoying the remaining preferences: e.g. Company B was established in 2014 and made profit for the first time in 2016. It enjoyed the tax exemption in 2016 and 2017, but the preferential period is still not expired. In this case, Company B is entitled to enjoy the remaining preferences from 2018

In the circumstances of the current economic situation, the release of this policy has demonstrated China’s determination to further develop its domestic pillar industries.