Issuing Body: Ministry of Commerce, Ministry of Finance, General Administration of Customs and State Administration of Taxation
Issuing Date: March 22, 2010
Effective Date: March 22, 2010
Seeking to encourage foreign investment in research and development centers and thereby to promote technical innovation in China, several key government agencies have jointly issued a pair of circulars that exempt certain equipment from import taxes and provide for refunds of value-added taxes on domestically made scientific and technical equipment. The Circular on Tax Policies for the Procurement of Equipment by Research and Development Institutions (Procured Equipment Tax Circular) was issued on October 10, 2009, while the Circular on Measures for Reviewing the Qualifications of Foreign-Invested Research and Development Centers for Tax Exemptions and Refunds on Procured Equipment (Qualifications Review Circular) was issued on March 22, 2010.
Under the two circulars, foreign-invested research and development centers may, upon recognition and approval, be entitled to an exemption from import taxes on equipment imported for the purpose of scientific and technological development, or a full refund of value-added taxes on equipment made in China. The Appendix of the Procured Equipment Tax Circular lists the type of equipment—lab equipment, devices and appliances necessary for scientific research, teaching and scientific or technological development—for which foreign-invested R&D centers can seek exemptions and refunds.
The qualification conditions, required documentation, and review procedures relating to the approval of tax exemptions and refunds are summarized below.
Qualification Conditions
Approved R&D Centers seeking to enjoy preferential tax treatments under the two circulars must satisfy somewhat different conditions, based on their date of establishment and how long they have been in existence.
R&D Centers that were established on or before September 30, 2009, must satisfy the following conditions.
- An R&D Center that has been in existence for less than two years as of that date (i.e., that was established between September 30, 2007, and September 30, 2009) and is an independent legal person (separate enterprise) must have a total investment of no less than US$5 million U.S. dollars.
- For an R&D Center that has been in existence for less than two years and that was established as an internal division or a branch of another enterprise, its total investment in R&D shall be no less than US$5 million.
- An R&D Center that has been in existence for more than two years as of that date (i.e., that was established before September 30, 2007) must have annual R&D expenses of no less than RMB10 million.
- The R&D Center shall employ no fewer than 90 full-time research and experimental development personnel.
- The accumulated original value of equipment procured since the R&D Center's establishment shall be no less than RMB10 million.
R&D Centers that were established on or after October 1, 2009, must satisfy the following conditions.
- If established as an independent legal person (i.e., an independent enterprise), the R&D Center must have a total investment of no less than US$8 million.
- If established as an internal division or branch of another enterprise, the R&D Center must have a total investment in R&D of no less than US$8 million.
- The R&D Center shall employ no fewer than 150 full-time research and experimental development personnel.
- The accumulated original value of equipment procured since the R&D Center's establishment shall be no less than RMB20 million.
Application Documentation
In order to enjoy tax exemptions or refunds on procured equipment, an R&D Center must first apply to the competent commerce department, together with the finance bureaus and state tax bureaus at the provincial level, and local customs (together, the Reviewing Authorities), submitting the following documentation:
- An application letter regarding its qualifications for tax exemptions or refunds on procured equipment, as well as an examination form
- Photocopies of its Certificate of Approval and Business License or, if not established as an independent legal person, photocopies of the Certificate of Approval and Business License of the foreign-invested enterprise to which it belongs and a confirmation letter of its being an R&D Center (usually, the approving letter or Confirmation on the Encouragement of the Development of a Foreign Investment approved or issued by the National Development and Reform Commission or its local counterparts)
- Copies of the R&D Center's capital verification report and audit report for the preceding year
- A detailed breakdown and list of R&D expenses, including equipment procurement expenditures
- A list of the center's full-time research and experimental development personnel (including names, positions, employment contract terms and contact information)
- Other documents as required by the Reviewing Authorities
Review Process
The Reviewing Authorities shall determine a filing date for qualification recognition applications based on local circumstances. The Reviewing Authorities should regularly hold joint meetings, review submitted application documents and compile a list of enterprises that satisfy the conditions for tax exemptions and refunds in accordance with the conditions in the Procured Equipment Tax Circular.
Following this review, the Reviewing Authorities shall issue a list of qualifying centers through public announcement. For applicants deemed to be unqualified, the competent commerce department is required to issue a written review opinion stating the reason for its decision, based on the joint meeting of the Reviewing Authorities. The public announcement and review opinions must be made within 60 working days from the date on which the Reviewing Authorities accept applications.
The Reviewing Authorities are required to conduct a re-examination of qualified R&D Centers once every two years. If an R&D Center is determined no longer to satisfy the qualification conditions, its preferential tax exemption/refund treatment shall immediately be revoked.