China Re-defines High-tech Enterprises

China's State Administration of Taxation has released an important rule on the appraisal and classification of high-tech enterprises, which sets a new threshold for high-tech companies to enjoy China's preferential taxes.

The new rule says that high-tech companies must be those that are engaged in at least one of the eight fields under the key support of the national government: electronic information technology; aviation and space technology; high-tech services; resource and environmental technology; biology and new medicine technology; new materials technology; new energy and energy-saving technology; and traditional industries that have undergone high-tech transformations and have their own core intellectual property rights. In addition, the income from high-tech product or service must account for more than 60% of the company's total income.

Regarding human resources, the rule says that 30% of staff at high-tech companies must have a college diploma and technical staff whith technology-related diplomas must account for more than 10% of the company's total staff. For R&D investment, the rule states that the companies must spend no less than 3%, 4% and 6%, respectively, of their annual sales income in the recent three years on research and development. Interestingly, Beijing has asked each high-tech enterprise to spend more than 5% of its annual sales income on R&D — this means even though some Beijing companies are not high-tech companies under the city's appraisal criteria, they now can enjoy the preferential tax policy.

Companies appraised as high-tech companies will be issued a certificate. The certificate will be valid for three years. During the period, the company can enjoy a 15% preferential tax policy.