New Incentives For Technologically-Advanced Service Enterprises in China

Excerpt from Practical Asian Tax Strategies by Jon Eichelberger & Brendan Kelly (Baker & Mckenzie, China)

Since January 1, 2006, a pilot testing was launched in Suzhou Industrial Park (“SIP”), which granted tax incentives to technologically-advanced service enterprises (“TASEs”), including technologically-advanced service outsourcing enterprises. On January 1, 2009, to further support the growth of TASEs, the State Council issued the Reply on Issues Relating to Promoting the Development of the Service Outsourcing Industry on January 15 2009 (“Circular 9”), which expanded the pilot testing to 20 cities in China and expanded the scope of incentives to include subsidies.

The most notable incentives provided in Circular 9 for qualified TASEs are (a) reduced Enterprise Income Tax (“EIT”) rate of 15% for a five year period starting from 1 January 2009; (b) employee educational expenses of up to 8% of the total salary expenses of the TASE can be deducted from the taxable income for EIT purposes; and (c) business tax exemption for offshore service outsourcing provided by TASEs. According to our informal discussions with tax officials, “offshore service outsourcing” encompasses situations where domestic PRC companies provide services to foreign companies.

Other incentives, such as subsidies for professional training expenses and cost to purchase public service platform equipments, as well as interest subsidies for loans used in constructing service outsourcing infrastructure in state-level economic zones in central and western China, are also provided to qualified technologically-advanced service outsourcing enterprises in Circular 9.

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