CIT Reduction for Encouraged Software IC Design Enterprises

Prescribed Criteria for Software Enterprises

1. The list of key software enterprise encouraged by the state is formulated by the National Development and Reform Commission, the Ministry of Industry and Information Technology in conjunction with the Ministry of Finance, the State Administration of Taxation and other relevant departments
1. The enterprise should legally be established in China (excluding Hong Kong, Macau, and Taiwan), with software product development and related information technology services as its main business and with independent legal personality; the establishment of the enterprise has a reasonable commercial purpose and does not reduce or exempt or postpone the payment of taxes as the main purpose.
2. In final settlement of labor contracts or labor dispatch, employment relationships, the monthly average number of employees with a bachelor’s degree or above accounts for no less than 40% of the company’s monthly average number of employees; and the monthly average number of research and development personnel accounts for no less than 25% of the company’s monthly average number of employees.
3. Enterprises need to have core technologies and carry out business activities based on them, and the total annual research and development expenses of the final settlement should account for no less than 7% of the total sales (operating) income (the sum of the main business income and other business income). The amount of research and development expenses incurred by the enterprise in China shall not be less than 60% of the total amount of research and development expenses.
4. Final settlement and payment of annual software and related service income accounted for not less than 55% of the total income of the enterprise, of which the embedded software product development and sales (operating) income accounts for no less than 45% of the company’s total income. The proportion of software product independent development and sales and related information technology service (operating) income to the total income of the enterprise shall not be less than 45% [The proportion of embedded software product development and sales (operating) income to the total income of the enterprise shall not be less than 40%]
5. The main business or main products have patents or computer software copyrights and other intellectual property rights belonging to the company
6. Enterprises need to have production and business premises, software and hardware facilities and other development environments (such as legal development tools, etc.) that are compatible with software development, establish a quality management system that meets the requirements of software engineering, and continue to operate effectively
7. No major safety accidents, major quality accidents, intellectual property infringements, etc. occurred during the year of final settlement, and the company operates legally
2. To qualify, the software enterprise should also meet at least one of the following conditions, in addition to meeting the conditions for being the software enterprise encouraged by the state.
1. Companies that specialize in the development of basic software, R&D and design of industrial software will settle the annual software product development and sales and related information technology service (operating) income (the related information technology service refers to the consulting design and software directly related to the realization of the software product function Operation and maintenance, data services, the same below) shall not be less than 50 million RMB; the total annual research and development expenses shall not be less than 7% of the total sales (operating) income of the enterprise.
2. For enterprises specializing in the development and production of control industrial software, emerging technology software, and information security software, the annual income of software product development, sales, and related information technology service (operating) shall not be less than 100 million RMB; the taxable income shall not be less than 5 million RMB; the monthly average number of research and development personnel accounts for no less than 30% of the company’s monthly average total number of employees; the final settlement of the total annual research and development expenses accounts for no less than 8% of the company’s total sales (operating) income.
3. Enterprises that specialize in the development of key area application software, business management industrial software, public cloud service software, and embedded software. The annual revenue of software product development, sales, and related information technology services (operating) shall not be less than 500 million RMB. The taxable income should not be less than 25 million RMB; the monthly average number of research and development personnel accounts for not less than 30% of the company’s monthly average total number of employees; The total annual research and development expenses of the final settlement shall account for no less than 7% of the total sales (operating) income of the enterprise.
3. Enterprises that meet the original policy conditions and have entered the preferential period before 2019 (inclusive) can continue to enjoy the original policy until the expiration. If te enterprise also complies with the provisions of this preference, it can enjoy the relevant preferential according to the ‘Announcement of the Ministry of Finance, the State Administration of Taxation, the Development and Reform Commission, the Ministry of Industry and Information Technology, on the Corporate Income Tax Policy for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry’(Announcement 45), including regular tax reduction, exemption and enjoy the preferential benefit for the remaining period until the expiry. In line with the original policy conditions, companies that have not entered the preferential period before 2019 (inclusive) will no longer implement the original policies from 2020 (inclusive).
4. If the software enterprise meets the conditions of multiple periodic tax reduction and exemption preferential policies in accordance with the provisions of ‘Announcement 45’, the enterprise shall choose one of the preferential treatments to benefit from. Enterprises that have already entered the preferential period can choose one of the relevant preferential treatments for the remaining period.

Material for Software Enterprises Qualification

1. Application Form for Key Software Enterprise Certification
2. Copies and counterpart of the business license of the enterprise legal person (bring the original when applying)
3. Copies of certification materials for software products that is independently developed or with intellectual property rights
4. Balance sheet, income statement, cash flow statement, corporate income tax return, staffing statement
5. Copy of software enterprise certification certificate (bring the original when applying)
6. Copy of the certificate of national and ministerial awards
7. Detailed information and accessories of the product’s market share
8. Export situation of software companies
9. Certification materials and copies of the qualification level of the system integration company

Prescribed Criteria for IC Design Enterprises

1. The list of key IC design enterprise encouraged by the state is formulated by the National Development and Reform Commission, the Ministry of Industry and Information Technology in conjunction with the Ministry of Finance, the State Administration of Taxation and other relevant departments
2. To qualify, the IC design enterprise should also meet at least one of the following conditions, in addition to meeting the conditions for being the IC design enterprise encouraged by the state according to ‘Announcement of the Ministry of Industry and Information Technology of the People’s Republic of China, the National Development and Reform Commission, the Ministry of Finance, and the State Administration of Taxation’.
1. In the final settlement of labor contracts or labor dispatch, employment relationships, the monthly average number of employees with a bachelor’s degree or above accounts for no less than 50% of the company’s monthly average number of employees; and the monthly average number of research and development personnel accounts for no less than 40% of the company’s monthly average number of employees.
2. Enterprises need to have core technologies and carry out business activities based on them, and the total annual research and development expenses of the final settlement should account for no less than 6% of the total sales (operating) income (the sum of the main business income and other business income).
3. Final settlement and payment of annual IC design (including EDA tools, IP and design services, the same below) sales (operating) income accounted for not less than 70% of the total income of the enterprise, of which the independent design of IC sales (operating) income accounted for no less than 60% of the total income. For enterprises with IC design sales (operating) income exceeding 5 billion yuan, the proportion of annual IC design sales (operating) income to total corporate income shall not be less than 60%, of which the independent design and sales (operating) income of integrated circuits accounts for no less than 50% of the total income of the enterprise.
4. The enterprise needs to have core technologies and intellectual property rights, and the enterprise has no less than 8 authorized invention patents, layout design registrations, and computer software copyrights related to IC product design
3. In addition to the above conditions, at least one of the following conditions should be met。
1. In the final settlement, the IC design sales (operating) income shall not be less than 500 million RMB, and the taxable income shall not be less than 30 million RMB; for enterprises with IC design sales (operating) income more than 5 billion RMB, their taxable income may not be required, but the total research and development expenses should account for no less than 8% of the total sales (operating) income (the sum of the main business income and other business income).
2. within the key IC design fields encouraged by the state, enterprises’ annual IC design sales (operating) income shall not be less than 30 million RMB, and the taxable income shall not be less than 3.5 million RMB.
4. Enterprises that meet the original policy conditions and have entered the preferential period before 2019 (inclusive) can continue to enjoy the original policy until the expiration. If te enterprise also complies with the provisions of this preference, it can enjoy the relevant preferential according to the ‘Announcement of the Ministry of Finance, the State Administration of Taxation, the Development and Reform Commission, the Ministry of Industry and Information Technology, on the Corporate Income Tax Policy for Promoting the High-quality Development of the Integrated Circuit Industry and the Software Industry’(Announcement 45), including regular tax reduction, exemption and enjoy the preferential benefit for the remaining period until the expiry. In line with the original policy conditions, companies that have not entered the preferential period before 2019 (inclusive) will no longer implement the original policies from 2020 (inclusive).
5. If the IC design enterprise meets the conditions of multiple periodic tax reduction and exemption preferential policies in accordance with the provisions of ‘Announcement 45’, the enterprise shall choose one of the preferential treatments to benefit from. Enterprises that have already entered the preferential period can choose one of the relevant preferential treatments for the remaining period.