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China, People's Republic of Corporate - Tax credits and incentives

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The CIT law adopts the ‘Predominantly Industry-oriented, Limited Geography-based’ tax incentive policy. Key emphasis is placed on ‘industry-oriented’ incentives aiming at directing investments into those industry sectors and projects encouraged and supported by the state. The tax incentive policies mainly include the following and are applicable to both domestic and foreign investments.

Tax reduction and exemption

CIT may be reduced or exempted on income derived from the following projects:

Projects/industries CIT incentive Valid period
Agriculture, forestry, animal-husbandry, and fishery projects Exemption or 50% reduction All years, as long as it is engaged in these projects
Specified basic infrastructure projects 3 + 3 years tax holiday (2) Starting from the first income-generating year
Environment protection projects and energy/water conservative projects 3 + 3 years tax holiday (2) Starting from the first income-generating year
Qualified new/high tech enterprises established in Shenzhen, Zhuhai, Shantou, Xiamen, Hainan, and Pudong New Area of Shanghai after 1 January 2008 2 + 3 years tax holiday (1) Starting from the first income-generating year
Software enterprises 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier
Integrated circuits design enterprises 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier
Integrated circuits production enterprises with a total investment exceeding CNY 8 billion or that produce integrated circuits with a line-width of less than 0.25um, provided that its operation period exceeds 15 years 5 + 5 years tax holiday (3) Starting from the first profit-making year or 2017, whichever is earlier
Integrated circuits production enterprises that produce integrated circuits with a line-width of less than 0.8um 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier
Qualified integrated circuits packaging/testing enterprises 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier
Qualified enterprises that manufacture key parts or equipment used for the production of integrated circuits 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier
Qualified energy-saving service enterprises 3 + 3 years tax holiday (2) Starting from the first income-generating year
Encouraged enterprises in underprivileged areas of Xinjiang 2 + 3 years tax holiday (1) Starting from the first income-generating year
Projects involving a clean development mechanism (CDM) 3 + 3 years tax holiday Starting from the first year during which the first disposal of certified emission reduction units takes place
Certified animation enterprises that produce self-developed animation products 2 + 3 years tax holiday (1) Starting from the first profit-making year or 2017, whichever is earlier

Notes

  1. ‘2 + 3 years tax holiday’ refers to two years of exemption from CIT followed by three years of 50% reduction of CIT.
  2. ‘3 + 3 years tax holiday’ refers to three years of exemption plus three years of 50% reduction of CIT.
  3. ‘5 + 5 years tax holiday’ refers to five years of exemption plus five years of 50% reduction of CIT.

For income derived from the transfer of technology in a tax year, the portion that does not exceed CNY 5 million shall be exempted from CIT and the portion that exceeds CNY 5 million shall be allowed a 50% reduction of CIT.

A CIT exemption applies to the dividend derived by a TRE from the direct investment into another TRE, except where the dividend is from stocks publicly traded on the stock exchanges and the holding period is less than 12 months.

A CIT exemption also applies to the income derived by recognised non-profit-making organisations engaging in non-profit-making activities.

Reduced tax rate

The CIT rate may be reduced under certain conditions for different industries (see the Taxes on corporate income section for more information).

Reduction of revenue

Where an enterprise uses resources specified by the state as its major raw materials to produce non-restricted and non-prohibited products, only 90% of the income derived is taxable.

Offset of certain venture capital investment

For a venture capital enterprise that makes an equity investment in a non-listed small to medium-sized new/high tech enterprise for more than two years, 70% of its investment amount may be used to offset against the taxable income of the venture capital enterprise in the year after the holding period has reached two years. Any portion that is not utilised in that year can be carried forward and deducted in the following years.

Investment tax credit

Enterprises purchasing and using equipment specified by the state for environmental protection, energy and water conservation, or production safety purposes are eligible for a tax credit of 10% of the investment in such equipment. Any unutilised amount can be carried forward and creditable in the following five years.

Other incentives

There are also tax incentives in relation to the deduction of expenses and cost (e.g. 50% additional R&D deduction, shorter tax depreciation period, and accelerated depreciation). See the Deductions section for more information.

Foreign tax credit

A TRE is allowed to claim foreign tax credit in relation to foreign income tax already paid overseas in respect of income derived from sources outside China based on a country-basket principle. The creditable foreign tax also includes foreign income tax paid by qualified CFCs. However, the creditable amount may not exceed the amount of income tax otherwise payable in China in respect of the foreign-sourced income. In addition, there is a five-year carryforward period for any unutilised foreign tax.


Last Reviewed - 29 November 2017

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