Notice Jointly Issued by the Ministry of Finance, the State Administration of Taxation, the Ministry Of Commerce, the Ministry of Science and Technology and National Development and Reform Commission Regarding Corporate Income Tax Treatments for Technology Advanced Service Enterprises

Cai Shui [2010] No. 65

November 5, 2010

The finance departments (authorities), the offices of the State Administration of Taxation, the local taxation authorities, the competent commerce departments, the science and technology departments (commissions or authorities) and the development and reform commissions of Beijing, Tianjin, Dalian, Heilongjiang, Shanghai, Jiangsu, Zhejiang, Anhui, Xiamen, Jiangxi, Shandong, Hubei, Hunan, Guangdong, Shenzhen, Chongqing, Sichuan and Shaanxi provinces (municipalities directly under the Central Government, cities specially designated in the state plan),

Relevant issues concerning Corporate Income Tax treatments for Technology Advanced Service Enterprises are hereby notified as follows in line with the spirit of relevant documents promulgated by the State Council:

Article 1 The following preferential Corporate Income Tax treatments shall be implemented in China’s 21 Trial 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 from July 1, 2010 to December 31, 2013.
1. Recognized Technology Advanced Service Enterprises shall pay Corporate Income Tax at the reduced rate of 15 percent;
2. The amount of educational and training expenses of an recognized Technology Advanced Service Enterprises that does not exceed 8 percent of the enterprise’s total salary payment shall be deducted for the calculation of the taxable income; and the amount of said expenses that exceeds 8 percent of the enterprise’s total salary payment shall be carried forward to following tax years;

Article 2 Technology Advanced Service Enterprises which are entitled to the preferential Corporate Income Tax treatments as specified in Article 1 hereof shall meet the following requirements simultaneously:

1. Are engaged in one or several types of the Technology Advanced Service business as set out in the Scope of Approved Technology Advanced Service business(Trial Implementation) (see the Attachment), adopt advanced technologies and have relatively strong research and development capacity;

2. The registration and business places shall be within one of the Trial Cities (including any district, county or county-level city of the Trial City);

3. Have legal person status and do not commit any illegal act in respect of import or export management, financial management, taxation administration, foreign exchange administration and customs administration over the past two year;

4. The employees with a junior college degree or above account for more than 50 percent of the total employees;

5. The income derived from service business which is specified in the Scope of Approved Technology Advanced Service business (Trial Implementation) accounts for more than 50 percent of the total revenue in the current year; and

6. The income earned from the offshore service outsourcing business is not less than 50 percent of the total revenue in the current year.

The income earned from the offshore service outsourcing business refers to the income that an enterprise earns from overseas entities by providing or urging its direct subcontractors to provide Information Technology Outsourcing (ITO), Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) services as set out in the Scope of Approved Technology Advanced Service business (Trial Implementation) to the said overseas entities in accordance with the commission contracts entered into with such overseas entities.

Article 3 Administration of the recognition of Technology Advanced Service Enterprises

1. The competent departments of science and technology, commerce, finance, taxation and development and reform of the people’s governments in the Trial Cities shall draw up concrete measures for the administration in accordance with this Circular, and submit relevant measures to the Ministry of Science and Technology, the Ministry of Commerce, the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission and the competent departments of science and technology, commerce, finance, taxation and development and reform of relevant provinces (municipalities directly under the Central Government and cities specially designated in the state plan).

The competent departments of science and technology, commerce, finance, taxation and development and reform of the provinces (municipalities directly under the Central Government and cities specially designated in the state plan) where the Trial Cities are located shall be responsible for guiding the administration of recognition of Technology Advanced Service Enterprises in relevant Trial Cities.

2. A qualified Technology Advanced Service Enterprises shall submit an application to the competent science and technology department of the people’s government in the Trial Cities where it is located and the competent science and technology department shall, in close cooperation with competent departments of commerce, finance, taxation and development and reform, conduct joint examination and publish a document to recognize the enterprise as a Technology Advanced Service Enterprise. The list of recognized enterprises shall be timely submitted to the Ministry of Science and Technology, the Ministry of Commerce, the Ministry of Finance, the State Administration of Taxation and the National Development and Reform Commission and the competent departments of science and technology, commerce, finance, taxation and development and reform of relevant provinces (municipalities directly under the Central Government and cities specially designated in the state plan).

3. Recognized Technology Advanced Service Enterprises shall go through formalities for their entitlement to the preferential Corporate Income Tax treatments set out in Article 1 hereof with local taxation departments on the strength of relevant recognition documents. Where changes take place in Technology Advanced Service Enterprises that are entitled to the preferential Corporate Income Tax treatments, relevant enterprises shall report to local taxation departments within 15 days of the date of change; enterprises that are no longer entitled to the treatments shall pay tax in accordance with the law. Where competent taxation departments discover, when implementing the preferential tax treatments, that relevant enterprises are not qualified Technology Advanced Service Enterprises, relevant enterprises?entitlement to the preferential treatments shall be suspended and an application for reexamination shall be submitted to relevant recognition institutions.

4. The competent departments of science and technology, commerce, finance, taxation and development and reform in the Trial Cities and in relevant provinces (municipalities directly under the Central Government and cities specially designated in the state plan) shall conduct follow-up administration of recognized Technology Advanced Service Enterprises. In the event any enterprise that changes its business scope, undergoes merger or split-off, enters into another industry or moves to another place is discovered to fail to meet relevant recognition requirements, its qualification for the entitlement to the preferential treatments shall be timely canceled.

Article 4 The competent departments of science and technology, commerce, finance, taxation and development and reform in the Trial Cities shall carefully implement all the provisions of this Circular and enhance communication and cooperation. Any problem discovered during the implementation hereof shall be timely reported to 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 on a hierarchical basis.

Article 5 The Circular of 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 on Issues Concerning Tax Policies for Technology Advanced Service Enterprises (Cai Shui [2009] No. 63) shall be repealed from July 1, 2010.

Attachment: Scope of Qualified Technology Advanced Service business (Trial Implementation)