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What are the main tax preferential policies for companies registered in China?

The Chinese government has established a preferential Corporate Income Tax (CIT) rate for small scale and low profit enterprises (小型微利企业),i.e. enterprises with an annual turnover below CNY 3 million (around EUR 378k, less than 300 employees, and total asset value below CNY 50 million. Specifically, from 1 January 2022 to 31 December 2024:

§  SMEs with an annual turnover below CNY 1 million (around EUR 126k): 20% CIT rate calculated only on 12.5% of their turnover;

§  SMEs with an annual turnover above CNY 1 million (around EUR 126k) but below CNY 3 million (around EUR 378k): 20% CIT rate calculated only on 25% of their turnover;

In addition, various preferential tax schemes were established to attract or stimulate investment in certain priority areas or regions. Key examples include the CIT rate reduction from 25% to 15% for companies which are recognised with High- and New-Technology Enterprise status (HNTE, 国家高新技术企业)or Technology Advanced Service Enterprise status (TASE, 技术先进型服务企业): the former requires ownership from the China-based entity of the IP rights, as well as R&D investments in key sectors exceeding 5% of the turnover; the latter requires the company to be engaged in BPO, ITO or KPO services. Similar tax breaks is offered for a few years to software and integrated circuit enterprises. The CIT rate reduction to 15% is also provided to foreign investors investing in certain sectors in particularly encouraged geographical areas, such as central and western regions (according to the national Catalogue of Priority Industries for Foreign Investment in Central and Western China, link), or in the Hainan Free Trade Port.

It is also noteworthy that tax incentives or subsidies may also be given by local governments to foreign investors investing in priority sectors within their jurisdictions. A common incentive, for instance, is the reimbursement of a certain % of the CIT paid by the enterprise in the previous year; or subsidies paid back based on the amount of taxes paid. Such incentives are usually specified in ad hoc policy documents usually published on the websites of the local government, and should be a key factor to consider before investing in China, and to negotiate with the local administration.

Finally, in addition to CIT incentives, other tax incentives offered may include the exemption of input VAT for all imported high-tech equipment that cannot be produced domestically.