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Income Tax Incentives for Developing Talent 

IIT subsidies for overseas high-end talents and urgently needed talents

From the start of 2019 to the end of 2023, eligible overseas talents working in nine cities of Guangdong province – Guangzhou, Shenzhen, Zhuhai, Huizhou, Zhaoqing, Jiangmen, Dongguan, and Foshan – are able to apply for individual income tax (IIT) subsidies because of a talent policy for the Guangdong-Hong Kong-Macao Greater Bay Area.

The subsidies will be calculated based on the taxable individual income sub-items separately and will then be distributed on a lump-sum basis next year. Thus, the calculation formula of subsidy amount can be extended as:

The subsidy amount =∑ [(the amount of IIT paid in sub-items in nine cities in 2019 – taxable income in sub-items × 15%)]

The taxable income includes the following sub-items:

  • Comprehensive income, including:
    – Income from wages and salaries;
    – Income from labor compensation;
    – Remuneration income; and
    – Income from royalties;
  • Operating income; and
  • Subsidized income from selected talent programs or talent projects.

Overseas talents working in the above-mentioned nine cities and paying taxes as required by law in the local city are eligible for the subsidy. They may be:

  • Permanent residents of Hong Kong or Macau;
  • Hong Kong residents who came to Hong Kong through the Hong Kong entry scheme for talents, professionals, and entrepreneurs;
  • Residents of Taiwan;
  • Foreign nationalities; or
  • Overseas students and overseas Chinese who have obtained the right of long-term residence abroad.

Applicants shall also fit the definition of “high-end” and “urgently needed” talents and meet the income condition and contract condition, set out by the municipal governments.

Preferential IIT policies for talents in Hainan FTP

According to Cai Shui [2020] No.32, for high-end talents and talents in short supply working at Hainan FTP, the portion of their actual IIT burden exceeding 15 percent will be exempted.

The following types of income sourced from Hainan FTP will be eligible:

  • Comprehensive income, such as wages and salaries, remuneration for labor services, author’s remuneration, and income from royalties;
  • Operation income; and
  • Talent subsidy income recognized by Hainan Province.

Eligible Hainan talents still need to pay IIT according to China’s general IIT rate in the current year first. When the final settlement is made during March 1 to May 31 of the next year, the Hainan tax bureau will refund the portion of the IIT that exceeds 15 percent of the actual taxable income.

A list of professions that qualify as high-end talent and talent in short supply who can enjoy the aforesaid preferential policies and specific administrative measures will be formulated by Hainan Province in consultation with the MOF and the STA. various financial incentives at the provincial, municipal, district, and development zone levels

Various individual income tax incentives, subsidies, and rewards may be offered to talents working at special zones, such as Lingang New Area of Shanghai Free Trade Zone, Suzhou Industrial park, etc. Talents may consult with the local authorities or professionals to ensure whether they can be eligible to enjoy these preferential policies.

Income Tax Incentives - Opportunities in Specific Sectors and Regions

CIT incentives for integrated circuit enterprises and software enterprises

On August 4, 2020, China’s State Council released the Policies of Promoting High-quality Development of Integrated Circuit Industry and Software Industry (Guo Fa [2020] No.8).

The document lays out a wide range of policies to shore up the development of the integrated circuit (IC) and software industries, applying to all companies registered in China, regardless of nationality.

Under the new policy, qualifying IC production enterprises or projects that employ integrated circuit line width of no more than 28 nanometers (nm) and have operated for more than 15 years will be exempt from CIT for as many as 10 years.

For encouraged IC manufacturing enterprises or projects with integrated circuit line width that is no more than 65 nm and operation period of over 15 years, they can enjoy CIT exemption for the first five years, and a half-rate tax deduction of the 25 percent CIT deduction (that is, 12.5 percent) in the subsequent five years.

For encouraged IC manufacturing enterprises or projects with integrated circuit line width no more than 130 nm and operation period of over 10 years, they can enjoy tax exemption for the first two years and a half-rate tax reduction (that is, 12.5 percent) in the following three years.

In addition, where an encouraged IC manufacturing enterprise that employs integrated circuit line width that is no more than 130 nanometers incurs a loss in a tax year, the enterprise is allowed to carry the loss forward to subsequent years, provided the loss carried forward does not exceed 10 years (note: for normal enterprises, the loss carried forward generally cannot exceed five years).

The abovementioned tax incentives count starting from the first profit making year for the IC enterprise, or the first business revenue collection year for the IC project.

The list of encouraged IC manufacturing enterprises or projects will be drawn up by the National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT), together with other relevant authorities.

For encouraged enterprises engaging in IC design, IC equipment, IC materials, IC packaging, and IC testing as well as software enterprises – they can enjoy tax exemption for the first two years and a half-rate tax reduction (12.5 percent) in the following three years, starting from the first profit making year of the enterprise.

The qualification of encouraged IC design, equipment, materials, packaging, and testing enterprises will be drawn up by the MIIT together with other relevant authorities.

Key IC enterprises and software enterprises can enjoy tax exemption for the first five years and a reduced 10 percent CIT rate in the following years, starting from the first profit making year of the enterprise. The list of key encouraged IC enterprises and software enterprises will be drawn up by the NDRC, MIIT, together with other relevant authorities.

CIT incentives for advanced technology service enterprises

On November 2, 2017, tax incentives for advanced technology service enterprises (ATSE) were formally rolled out nationwide, based on a circular jointly released by MOF, SAT, the Ministry of Commerce (MOFCOM), the Ministry of Science and Technology, and the National Development and Reform Committee (NDRC).

According to the circular, CIT for a qualified ATSE will be calculated at the preferential tax rate of 15 percent, instead of the standard 25 percent rate.

With retroactive effect from January 1, 2017, the circular also clarified the requirements to enjoy the above-mentioned tax benefits. Among others, a qualified ATSE must be registered in China and engage in technologically advanced services as specified in the Recognition Scope of Technologically Advanced Services (for Trial Implementation). The enterprise’s income from the technologically advanced services should account for more than 50 percent of its total revenue in the current year, while the enterprise’s income from offshore outsourcing services should be no less than 35 percent of its total revenue in the current year. In addition, at least 50 person of a qualified ATSE’s employees must hold a college degree or above.

Originally launched in the Suzhou Industrial Park in 2016, the tax incentives for ATSE applied to 21 pilot cities in 2014 and another 22 cities in 2016. As a follow-up implementation rule of the general tax cut plan announced by Premier Li Keqiang in August 2017, the circular is regarded as a major tax incentive for service-oriented enterprises, especially those providing technology-related services to clients and affiliates outside China but were not located in the previous pilot cities.

CIT reduction for enterprises established in certain development zones

Enterprises that are established in development zones, such as Hengqin area and Qianhai area in Guangdong Free Trade Zone (FTZ), Pingtan area in Fujian FTZ, and Lingang Area of Shanghai FTZ, and are engaged in encouraged industries shall enjoy a reduced CIT rate of 15 percent.

The aforesaid enterprises that engage in encouraged industries refer to the enterprises whose primary businesses are any of the industrial projects listed in the Preferential Corporate Income Tax Catalogue for the areas in which they are located, and whose revenue from the primary businesses accounts for more than 70 percent of their total revenue.

Some of the preferential CIT rates in the FTZs had been expired by the end of 2020. Investors are suggested to consult with firms who are familiar with the local policies if tax incentive is a deciding factor in their location selection process.

CIT incentives for income derived from eligible environmental protection, energy saving, or water conservation projects

The income an enterprise obtains by undertaking eligible projects, such as public sewage treatment, public garbage treatment, comprehensive development and utilization of biogas, technological transformation for energy saving and reduced emissions and desalination, etc., will be exempted from CIT for the first three years as of the taxable year when the revenue arising from production or operation is first obtained, and taxed at a half rate from the fourth to the sixth year.

CIT incentives for enterprises making investments in or operating of public infrastructure projects specially supported by the state

Income obtained from projects in respect to ports, wharves, airports, railways, roads, urban public transportation, electric power, and water conservancy listed in the Catalogue of Public Infrastructure Projects Entitled to CIT Preferential Policy will be exempted from CIT for the first three years as of the taxable year when the revenue arising from production or operation is first obtained, and taxed at a half rate from the fourth to the sixth year.

CIT incentives for enterprises engaging in other sectors

  • Tax incentives for enterprises engaging in pollution control - Qualified resident enterprises engaging in pollution control can enjoy a reduced CIT rate of 15 percent, during the period between January 1, 2019 and December 31, 2021.
  • Income derived from planting of flowers, tea, and other beverage plants and spiceberries, and income derived from mariculture and inland aquaculture shall be subject to 50 percent CIT reduction.
  • Income derived from the following projects could be exempted from CIT:
    • Planting of vegetables, corn, potatoes, oil plants, beans, cotton, hemp, sugar plants, fruit, and nuts;
    • Breeding of new varieties of crops;
    • Planting of traditional Chinese medicinal herbs;
    • Cultivation and planting of woods;
    • Raising of livestock and poultry;
    • Gathering of forest products;
    • Agricultural, forestry, husbandry, and fishery service projects such as irrigation, primary processing of agricultural products, veterinarian, promotion of agricultural technology, operations, repair and maintenance of agricultural machinery etc.; and
    • Ocean fishing.
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