On August 11, 2016, MOF and SAT jointly issued Circular Cai Shui [2016] No. 89, providing tax incentives for eligible technology enterprise incubators (“incubators”). 

The highlights:

1. Tax incentives

- From January 1, 2016, to December 31, 2018, eligible incubators will be exempt from real estate tax and urban land use right tax on real estate and land for own use or provided by them or leased at no cost to incubated enterprises.

- From January 1, 2016, to April 30, 2016, eligible incubators will be exempt from business tax on income derived from leasing sites or buildings, and providing incubation services. From May 1, 2016, with the full expansion of the VAT reform, eligible incubators will be exempt from VAT accordingly.

- Income of eligible incubators considered non-profit organizations can also benefit from the enterprise income tax (“EIT”) exemption under the EIT Law and its implementing rules. This incentive does not include income derived from profitmaking activities. 

2. Eligible incubators

(1) The incubator must meet all requirements set out for national-level technology company incubator. The Ministry of Science and Technology of the State Council is in charge of releasing the list of eligible national incubators.

(2) The incubator must account separately for business income derived from leasing sites or buildings, and from providing incubation services to incubated companies.

(3) The sites that the incubator leases to the incubated companies must account for at least 75% of all the incubator’s sites.

(4) The number of incubated companies must account for at least 75% of the companies within the incubator. 

3. Incubated companies

Incubated companies must meet all the following conditions:

(1) The company must register and have its main R&D and operating site within the  incubator.

(2) The company must be newly registered or have been registered for no more than two years before moving to the incubator.

(3) The incubating time inside the incubator is limited to 48 months, extendable to 60 months if the incubated companies specialize in the fields of biomedicine, integrated circuit design or modern agriculture, or the talents are recruited under the “Creative Talent Promotion Plan” or “Overseas High-Level Talent Introduction Plan.”

(4) The company must meet the categorization standards for small and micro companies provided under the Measures of Categorization Standards for Medium and Small Companies.

(5) The incubating site for each incubated company cannot exceed 1,000 square meters, extendable to 3,000 square meters if the incubated company specializes in the fields of aviation and aerospace.

(6) The incubated company’s products or services must be within the scope of the High and New Technology Fields with Key National Support. 

4. Tax administration

The competent provincial science and technology authority is in charge of carrying out routine eligibility inspections for tax incentives, and reporting to the Ministry of Science and Technology of the State Council. Based on these reports, if the conditions are fulfilled, the Ministry will issue a certificate to the eligible incubator, indicating the address of the real estate and land, and area and number of square meters, and send this information to SAT.

Qualified incubators must obtain the certificate and file it with the competent tax authorities to apply the tax incentives.