China to Offer Incentives to Its High-Tech, Cultural Industries

In a recent statement, China’s State Administration of Taxation (SAT) has vowed to offer more tax incentives to the country’s cultural industries, especially those emerging cultural industries essential to China’s advancement in technological innovation.

Favorable policies will mainly go to high-tech as well as emerging cultural industries, and nonprofit cultural organizations.

High-tech industries
The SAT says it is working on a more reasonable taxation system for the country’s high-tech industries, in a move to realize further technological progress, boost innovation, and push forward technology transfer.

So far, China has granted a series of tax incentives to high-tech industries. These incentives include:

• Reduced corporate income tax (CIT) rate: The CIT rate for high-tech enterprises – if they meet the criteria specified in the SAT’s “High-tech Enterprise Recognition Standards (guokefahuo [2008] No.172)” – is reduced to 15 percent.
• Favorable CIT treatment for research and development (R&D) expenses:
  1) Where a company’s R&D expenses (the expenses on technology, techniques and products R&D) have been counted into the profit/loss during a certain period, but have not formed intangible assets, 50 percent of the actual R&D expenses during the period may still be deducted from the company’s taxable income.
  2) Where a company’s R&D expenses have formed intangible assets, 150 percent of the intangible asset cost shall be amortized before taxation.
• Business tax (BT) exemption on technology transfer and development: The revenue from the technology transfers and development (including related technology consultation and other services) conducted by an individual (including a foreign individual) and an enterprise (including a foreign-invested enterprise and a foreign-invested R&D center) is exempt from BT.

Emerging cultural industries
The SAT will offer more preferential tax policies to emerging cultural industries that belong to the seven strategic industrial sectors China has identified earlier. The seven strategic sectors include high-end equipment manufacturing, alternative energy, biotechnology, new generation information technology, alternative fuel cars and energy-saving and environmentally friendly technologies.

A few specific emerging cultural industries have already received some tax incentives:

• Animation development and production: The products imported for an enterprise’s animation development and production are exempt from import tariffs and import value-added tax (VAT), if the animation enterprise meets certain criteria.
• Digital cable TV reception maintenance: The basic digital cable TV reception maintenance fees charged by certain enterprises (specified by the SAT and Ministry of Finance) are currently exempt from business tax in 11 specified provinces/municipalities/cities.
• Cultural and creative services: In the coming VAT reform that is to commence in Shanghai next year, cultural and creative services have been included in the first batch of modern services that will be subject to VAT. The VAT rate will be charged at 6 percent.

Non-profit cultural organizations
The SAT will also aim at reducing the tax burdens of non-profit cultural organizations, so that those organizations can bring more benefits to the whole society’s cultural development.

China currently has a range of favorable tax policies for non-profit organizations (NPOs), for example:

• Certain incomes are exempt from CIT
• Revenue from certain services is exempt from BT
• Materials received free-of-charge from foreign governments and international organizations are exempt from customs duties
• Properties for certain NPOs’ self-use are exempt from property tax
• Certain vehicles/vessels for certain NPOs’ self or public use are exempt from vehicle and vessel tax
• Lands for certain NPOs’ self-use are exempt from land use tax

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