China: High Technology Enterprise Status, New Circular defines eligibility criteria
Under the New Corporate Income Tax Law (“CIT Law”), those High/New Technology Enterprises (“HNTEs”) eligible for key support from the State may enjoy a reduced income tax of 15%, as opposed to the standard tax rate of 25%. The Detailed Implementation Regulations of the CIT (“DIR”) stipulates the basic criteria for an enterprise to qualify as HNTE, but the rest remains ambiguous.
On April 14, 2008, the Ministry of Science and Technology, Ministry of Finance and State Administration of Taxation jointly issue the Circular GuoKeFaHuo [2008] No. 172 (the “Circular”), which contains:
- “Provisions of Recognition of High/New Technology Enterprise”(“Provisions”), and
- “High/New Technology areas supported by the State”(”Catalogue”)
The Circular becomes retroactively effective as of Jan 1, 2008, and further clarifies the details for eligibility criteria and applicable procedures.
A HNTE shall meet the following six requirements:
1
It falls within the scope of the Catalogue. The Catalogue contains eight areas:
- electronic information technology;
- biological and medical technology;
- aviation and space technology;
- new materials technology;
- high-tech services;
- new energy and energy conservation technology; and
- resources and environmental technology, and transformation of traditional sectors through high-new tech.
2
It owns its core intellectual property through (i) self-R&D, transfer, donation or merger in the last 3 years or; (ii) obtaining an exclusive right to use the IP associated with the main products and/or services for a 5 year period. Enjoying exclusive right to use the IP under specified conditions may also be regarded as owning core intellectual property, which seem to demonstrate that it becomes less stringent to fulfill such requirements than previously expected.
3
It employs a minimum number of technology and R&D staff: staffs with university degree and above shall account for at least 30% of the total headcount of the enterprise, and R&D staff shall account for over 10% of the total staff of the enterprise.
4
It has a minimum percentage of R&D expenditures. The percentage of R&D expenditures shall not be less than 6% if the total revenue in the preceding year is below RMB 50 million.
5
The income from high/new tech products/services shall exceed 60% of the total annual income of the enterprise.
6
It shall comply with some specified indexes in line with the “Working Guideline for Recognition of HNTEs”, which will be issued in the near future.
A governmental body - comprised of officials from the local counterparts of the Ministry of Science and Technology, the Ministry of Science and the State Administration of Taxation - will be established to assess the eligibility criteria of any applicant. Any applicant shall first successfully go though an online self-assessment and then submit to the institution a formal application. Upon approval, the enterprise will be awarded an HTNE certificate valid for a 3 year period from the issuance date.
It is noted that a HTNE has the obligation to report to the governmental body mentioned above any significant operational change such as merger, restructuring or modification of business scope.
