The Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the Ministry of Science and Technology and the National Development and Reform Commission jointly released the Circular on Enterprise Income Tax Policies Related to Service Enterprises with Advanced Technologies (the “EIT Circular”). Under the EIT Circular, 21 pilot cities, including Beijing, Tianjin, Shanghai, Chongqing, Dalian, Shenzhen, Guangzhou, Wuhan, Harbin, Chengdu, Nanjing, Xi'an, Jinan, Hangzhou, Hefei, Nanchang, Changsha, Daqing, Suzhou, Wuxi, and Xiamen shall implement various preferential enterprise income tax policies from July 1, 2010 to December 31, 2013.
According to the EIT Circular, the aforesaid preferential EIT policies include:
- Recognized service enterprises with advanced technologies are allowed to pay EIT at the rate of 15%;
- Where recognized service enterprises with advanced technologies incur expenditures for staff education, the portion of the expenditure which is no more than 8% of the total salary payment shall be deducted when calculating the enterprise’s taxable income. In addition, enterprises are allowed to carry over excess portions to be deducted in following tax years.
Service enterprises with advanced technologies entitled to such preferential tax policies must meet the following requirements:
- Engaging in one or more types of enumerated “advanced-technology services,” as provided for in an appendix to the EIT Circular entitled “Recognized Business Scopes of Advanced Technology Services (Trial)” and adopting advanced technologies or possessing strong research and development capabilities;
- Having a registered address and place of operation situated within a pilot city (inclusive of all administrative divisions such as districts and counties (cities at the county level));
- Having legal personality and no history of illegal acts with respect to import and export, financial, tax, foreign exchange and customs management within the past two years;
- Having employees with a college degree or above accounting for over 50% of the total workforce;
- Having total income derived from an enumerated advanced technology service accounting for over 50% of the total income of the year; and
- Having total income from international (offshore) outsourcing services being no less than 50% of the enterprise’s total income of the year.
With regard obtaining advanced technology service enterprise recognition, the EIT Circular provides that qualified service enterprises with advanced technologies shall file applications to the department of science and technology of the pilot city, which will then conduct a joint examination with the departments of commerce, finance, tax, as well as development and reform, for purposes of granting the recognition. The list of recognized service enterprises with advanced technologies shall also be reported to both the provincial and national departments of science and technology, commerce, finance, tax, as well as development and reform for filing purposes.
The “Recognized Business Scopes of Advanced Technology Services (Trial)” provides the following scope of service requirements:
- Information technology outsourcing, including software research and development and outsourcing, information technology research and development service outsourcing and information system operation and maintenance outsourcing;
- Technical business process outsourcing, including enterprise business process design services, enterprise internal management services, enterprise operation services and enterprise supply chain services; and
- Technical knowledge process outsourcing.
- Circular on Enterprise Income Tax Policies Related to Service Enterprises with Advanced Technologies
- Issuing Authority: the Ministry of Finance, the State Administration of Taxation, the Ministry of Commerce, the Ministry of Science and Technology, and the National Development and Reform Commission
- Date of Issuance: November 5, 2010/ Effective Date: November 5, 2010