The recent enactment of a preferential 15% corporate income tax (CIT) rate for select enterprises within the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone (HTCZ) marks a significant milestone in the People's Republic of China's fiscal policy aimed at promoting innovation and technological advancement. This policy, which is retroactively effective from January 1, 2023, through December 31, 2027, has been jointly announced by the Shenzhen Municipal Finance Bureau, the State Administration of Taxation (STA), and the Shenzhen Municipal Taxation Bureau. It exemplifies the Chinese government's strategic use of tax incentives to stimulate economic development, attract elite talent, and secure a competitive stance in the global technological arena.

The concessional CIT rate, established at 15% as opposed to the standard rate of 25%, is intended for  companies engaged in designated industries within the HTCZ. This initiative is aligned with China's broader strategy to deploy fiscal measures to encourage the growth of pivotal technological sectors and geographic regions, similar to other development zones such as the Lingang New Area of the Shanghai Pilot Free Trade Zone, the Hengqin-Guangdong-Macao In-Depth Cooperation Zone in Zhuhai, and the Guangzhou Nansha Economic and Technological Development Zone.

Established through a collaborative initiative between Shenzhen and the Hong Kong Special Administrative Region in 2017, the HTCZ serves as a beacon for innovation and technological collaboration. The zone encompasses sections in both Shenzhen and Hong Kong, with the Shenzhen segment, referred to as the Shenzhen Park, covering an area of 3.02 square kilometers. It is within this domain, particularly the Futian Free Trade Zone (FTZ), that the reduced CIT rate will be applied. This area, measuring 1.35 square kilometers, is strategically positioned and equipped to foster scientific and technological innovation.

The eligibility criteria for the reduced CIT rate are rigorous, ensuring that the incentives are directed towards entities that contribute substantially to the innovation ecosystem. To qualify, companies must source at least 60% of their total income from industries encouraged within the Catalogue of Preferential Corporate Income Tax in the Shenzhen Park of the HTCZ. Additionally, these entities are required to demonstrate "substantive operations" within the Futian FTZ, entailing extensive management and control over various operational facets.

The encouraged industries catalog is comprehensive, spanning 12 core technological fields including information science and technology, artificial intelligence, materials science, life sciences, and advanced manufacturing. This delineation of focus areas reflects China's strategic ambition to drive progress in high-tech industries, bolstering its international competitiveness and nurturing an economy driven by innovation.

Concurrently, a preferential individual income tax (IIT) scheme for Hong Kong residents working within the Shenzhen Park has been introduced. This scheme is designed to alleviate the tax burden on these individuals by exempting them from IIT that surpasses the amount they would have been liable for in Hong Kong, thereby facilitating talent exchange and contributing to the integrated development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA).

This preferential IIT scheme complements the CIT incentive by addressing the progressive tax rates applicable in both jurisdictions, which could otherwise deter talent mobility. By mitigating such fiscal barriers, the policy not only attracts Hong Kong residents to the Shenzhen Park but also aligns with existing subsidies targeting high-end and sought-after talent within the GBA, enhancing the region's allure as a center for innovation and technology.

In summary, the introduction of a 15% CIT rate for eligible entities within the HTCZ, coupled with the preferential IIT policy for Hong Kong residents, represents a sophisticated policy approach by the Chinese government. This strategy uses fiscal policy to drive technological innovation and economic integration, aiming to attract talent, encourage tech sector investment, and build a vibrant scientific ecosystem. It strengthens China's global tech stance and emphasizes its commitment to sustainable growth.

At PHC Advisory, we can offer you full support on matters regarding doing business in Italy and Asia, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com. 

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.

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