China Introduces Measures to Encourage the Development of Integrated Circuit and Software Industries

The State Council released a Notice to promote the development of the integrated circuit (IC) industry and software industry on August 4th, 2020. The Notice stipulates new measures such as tax reductions and exemptions across the whole industry chain. Additionally, the document outlines the incentives related to comprehensive support for the development of enterprises.

Firstly, fiscal and tax preferential policies affect the corporate income tax (CIT). Qualifying IC producers that meet the state requirements and have been in operation for 10 to 15 years (depending on the IC line type) will enjoy the tax exemption from 5 to 10 years. In addition, qualifying IC design enterprises and software enterprises may also receive tax incentives in the form of either a complete exemption or a reduced CIT rate.

Secondly, the IC and software enterprises will continue to benefit from preferential VAT treatment. These policies include excess input VAT refunds for eligible enterprises conducting major IC projects, and immediate VAT refunds upon collection of software products. Moreover, a VAT general taxpayer which sells software products developed and produced by itself is eligible for a VAT refund for the portion of paid VAT that exceeds 3% at the time the tax has been collected.

Thirdly, qualified enterprises will enjoy import tariff exemptions for certain products. The companies that may benefit include manufacturing enterprises producing logic circuits, compound IC manufacturing enterprises, advanced IC packaging and testing enterprises, key IC design enterprises and software enterprises, and category A enterprises importing self-use equipment, parts, and technology.

The Notice also provides supporting policies from the aspects of investment and financing, R&D, talent attraction, intellectual property, market applications, and international cooperation.

The suggested measures highlight the importance of the IC and Software industries in the long-term growth strategy of China. Both industries are currently included in the Country’s list of encouraged industries for foreign investment and, therefore, this Notice should further stimulate the inflow of foreign funds and encourage growth.

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