The Shanghai Municipal Taxation Bureau and the Shanghai Municipal Bureau of Finance have compiled the Guidelines for the Main Preferential Tax Policies for Supporting Scientific and Technological Innovation in Shanghai on the basis of the Guidelines on Major Preferential Tax Policies for Supporting Scientific and Technological Innovation in China, striving to provide taxpayers with menu-based and one-stop services and promote the preferential tax policies to be enjoyed.

The guidelines focus on six parts: venture capital, incentives for attracting and cultivating talents, research and experimental development, achievement transformation, development of key industries, and the whole industry chain, which are convenient for innovative entities to better know, understand and inquire about the current preferential tax policies. 

The policy excerpts are as follows:

1. Venture Capital

If a corporate Venture Capital Enterprise (VCE) adopts the equity investment mode to invest directly in a seed-stage or start-up technology-based enterprise (hereinafter referred to as a start-up technology-based enterprise) for 2 years (24 months), it can offset the taxable income of the corporate VCE according to 70% of the investment in the year when the equity interest has been held for 2 years; if there is not enough to offset the investment in the current year, it can be carried forward in the following tax years.

2. Preferential treatment for attracting and cultivating talents 

Expenditures incurred by enterprises for employee education expenses, not exceeding 8% of the total wages and salaries, are allowed to be deducted when calculating the taxable income for enterprise income tax; the excess is allowed to be carried forward for deduction in the following tax years.

3. Research and Experimental Development 

Full VAT refund for domestic equipment purchased by domestic-funded R&D institutions and foreign-funded R&D centers.

4. Transformation of Achievements

Taxpayers are exempted from VAT on the provision of technology transfer, technology development and related technical consultation and technical services.

5. Development of key industries

General VAT taxpayers selling software products developed and produced by themselves shall apply the policy of immediate refund of VAT on the part of their actual VAT burden exceeding 3% after collecting VAT at the current rate.

General VAT taxpayers will localize and transform imported software products for external sales, and their sales of software products can enjoy the policy of immediate refund of VAT as stipulated in Paragraph 1 of Article 1 of Cai Shui [2011] No. 100.

Localization transformation refers to redesigning, improving and converting the imported software products, etc., and the mere Chinese characterization of the imported software products is not included.

6. The whole industry chain 

Starting from January 1, 2016, when small and medium-sized hi-tech enterprises nationwide increase their share capital by undistributed profits, surplus and capital surplus to individual shareholders, individual shareholders who have difficulties in paying individual income tax at one time may, according to the actual situation, formulate their own plan for paying tax by installments, pay the tax by installments within no more than five calendar years (inclusive), and report the relevant information to the competent tax authorities for the record.

Individual shareholders shall be subject to individual income tax at a rate of 20% on the transferred share capital in accordance with the item of "Interest, Dividend and Bonus Income".

In the event that a shareholder transfers his/her shareholding and obtains cash income, such cash income shall be utilized as a priority for the payment of the outstanding tax.

If the enterprise declares bankruptcy according to law before the transfer of the part of equity by the shareholders, and the shareholders do not obtain any income after the disposal of the relevant interests or if the income is less than the initial investment amount, the competent tax authorities may not recover the unpaid individual income tax from the shareholders.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, 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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