In line with the increasing trend of specific new tax policies and incentives that has been recently spreading throughout China, Lingang New Area of Shanghai Pilot Free Trade Zone will propose additional incentives that aim to attract foreign investment, capital flows, and innovate customs supervision.

Qualified legal entities engaged in production or R&D activities in key industries will be eligible for a reduced corporate income tax rate (CIT) of 15% for 5 years from the establishment date. The Notice is effective retrospectively from January 1st 2020. Among the key industries are artificial intelligence, biomedicine, integrated circuits, and civil aviation. There are 4 criteria specified in the Notice to be satisfied by businesses in order to qualify for the preferred CIT treatment. Enterprises must comply with the requirements specified in the first two criteria, but they are free to choose between complying with the subsequent third or fourth criterion.

The first criterion specifies that the legal entities must be registered in Lingang New Area from the 1st of January 2020, but those that have relocated to the New Area are ineligible for the reduced CIT. The detailed industries breakdown can be found in ‘The Catalogue of Core Process in Key Industries of Integrated Circuits, Artificial Intelligence, Biomedicine, and Civil Aviation in the New Area’.

The second criterion outlines that at least one core product or technology shall be included in the main R&D or sales products of the enterprise. Core products are those that are essential in the industry chain.

The third criterion states that investors are required to either have a leading international market influence in the industry or have cutting-edge technologies. The fourth and final criterion proposes the conditions for R&D and production. For instance, an enterprise shall have leading talent engaged in scientific research, or the ability to establish an intellectual property system for its main products.

Lingang New Area in Shanghai is expected to become a competitive, influential, and international hub with improved technological facilities and infrastructure. The preferential CIT rate is set at the same level as high-tech enterprises in China; however, companies in Lingang New Area are not required to satisfy the same strict eligibility requirements that high-tech enterprises in other parts of China must adhere to.