Recent Chinese regulations have provided reduced requirements for enterprises to qualify as "Advanced Technology Service Enterprises" (ATSEs) in China. For technology outsourcing services enterprises, these new regulations provide an easier path to tax savings and additional tax reductions than measures passed in 2008 which allow enterprises to qualify as "High and New Technology Enterprises" (HNTEs). In this article, we will introduce ATSEs, the benefits to obtaining ATSE certification, how companies obtain such certification and why obtaining ATSE certification appears easier and provides advantages over obtaining HNTE certification.
The Enterprise Income Tax Law which became effective on 1 January 2008 provided in article 28 that enterprise income tax (EIT) for recognized HNTEs is 15% as compared to the normal rate of 25%. Later in 2008, the Chinese government issued the Certification of High and New Technology Enterprises Administrative Measures and Working Guidance on Administration of Recognition of High and New Technology Enterprise which set forth in detail requirements and procedures for being recognized as an HNTE.
Recently, on 5 November 2010, a number of Chinese government agencies jointly promulgated the Circular on Issues Regarding Enterprise Income Tax for Advanced Technology Service Enterprises [Caishui(2010)No. 65] which provides tax incentives to recognized ATSE. This, together with Notice Regarding Income Tax Exemption of Advanced Technology Service Enterprise's offshore outsourcing services in Demonstration Municipalities [Caishui(2010)No. 64]) issued on 28 July 2010, are to a large extent a restatement of the previously promulgated Circular on Issues Regarding Tax Policies for Advanced Technology Service Enterprises [Caishui(2009)No. 63] but provide lowered standards for ATSE qualification and an additional tax incentive.
When compared to qualifications for obtaining HNTE status, the ATSE standards are more favorable, especially for foreign invested enterprises (FIEs). First, the ATSE standards do not require any local IPR ownership, which is a challenging requirement for FIEs in China where corporate IPR ownership is often structured globally. Second, in addition to the EIT preference, ATSE certification offers EIT deduction for education and training expenses and a business tax exemption. Thus, if an enterprise, especially an FIE, in China offers technology outsourcing services, it should consider applying to obtain ASTE status over HNTE status.
Please click here to view the table: Comparison - ATSE vs. HNTE