Further clarification on tax incentives for software and integrated circuit enterprises – new opportunities and challenges
Since 2000, the Chinese government introduced a series of tax incentives for software and integrated circuit (IC) enterprises, aimed at promoting the growth of these industries, motivating enterprises to enhance their capacity in technological innovation and self-development, optimising the industrial chain, boosting technological innovation and the upgrading of industrial structure. These tax incentives did facilitate the rapid development of these industries in China.
Since 2015, in response to the move of the government to streamline administrative power, the State Council has promulgated various circulars to abolish relevant administrative approval for the qualification assessment, product registration and other administrative / non-administrative licensing examination and approval of software and IC enterprises, paving the way for such enterprises to enjoy relevant tax incentives via simplified procedures.
To implement the aforementioned simplified procedures after the removal of the administrative approval, on 4 May 2016, the Ministry of Finance (MOF), the State Administration of Taxation (SAT), the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) jointly released the Notice Regarding Certain Matters of Corporate Income Tax (CIT) Preferential Treatment for Software and IC Industries (Caishui  No.49, hereinafter referred to as Circular 49), which further clarified tax incentives for software and IC enterprises.
Highlights of Circular 49 include: 1) implementation of the record-filing system; 2) clarification on certain criteria for tax incentive entitlement; and 3) establishment of a post-record filing examination mechanism and enhancement of post-administration. Among them, 1) and 3) require relevant enterprises to have a higher compliance level. In this regard, enterprises should strengthen their internal management and control on the relevant criteria (such as core technology, accurate calculation of the research and development (R&D) expenditures) to secure their tax incentives and mitigate compliance risk.
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