After the release of the new administrative measures on certification and management of high-and-new technology enterprises (HNTE”) on January 29, 2016 (the “New Measures,” covered in our legal flash of February 2016), the certification system was put on hold, and local certification offices and applicant enterprises have been awaiting further clarification to review and file new applications, respectively.

On June 22, 2016, the Ministry of Science and Technology (“MST”), the Ministry of Finance (“MOF”) and the SAT finally issued their joint guidelines on certification and management of HNTE through Circular Guo Ke Fa Huo [2016] No. 195 (the “New Guidelines”), taking retroactive effect from January 1, 2016.

The New Guidelines replace the old guidelines under Guo Ke Fa Huo [2008] No. 362 and become the main reference on HNTE certification and management.

The following table identifies, explains and comments on the requirements clarified under the New Measures:

Click here to view the table.

The New Guidelines also clarify the following matters:

  1. Qualified HNTEs can benefit from the 15% reduced EIT rate for three years from the year they are certified as a HNTE. In the year when the HNTE certification expires, and before it is renewed, they can continue to apply 15% for EIT prepayment during the year. If they fail to renew the HNTE certification, they will offset EIT by applying the standard 25% EIT rate when filing their annual EIT return the following year.
  2. While their certification is valid, qualified HNTEs have annual reporting obligations concerning the annual status of IP rights, scientific and technical staff, R&D expenses and operating income, which they must report by May of the following year. Any HNTE that does not fulfill this requirement  for two years will be disqualified.
  3. The relevant authorities will implement mechanisms for random checks and key inspections on qualified HNTEs. During follow-up, the authorities will review total R&D expenses to total turnover ratio for the year under review and the two previous years.
  4. If a qualified HNTE is subsequently disqualified, it cannot reapply that same year. This relaxes the five-year requirement provided under the previous measures.

Although HNTE certification application had been suspended since the release of the New Measures, following the issue of the New Guidelines, the local certification offices are now accepting and processing applications again. Applicants should evaluate their compliance with requirements in light of the New Guidelines and, particularly, the new rating system, paying close attention to the local certification offices’ application deadlines for this year.

Qualified HNTEs under the former regime will continue to be governed by it until their current certification expires.

Date of issue: June 22, 2016. Retroactive effective date: January 1, 2016