About the recognition of Key Software Enterprises under the State's Plan
Synopsis
Pursuant to Caishui [2012] No. 27 (“Circular 27”), which stipulates CIT policies for further encouraging the development of software industries, the Ministry of Finance (MOF), the Ministry of Industry and Information Technology (MIIT), the National Development and Reform Commission (NDRC), the State Administration of Taxation (SAT) and the Ministry of Commerce (MOFCOM) released the “Trial Measures on Recognition and Administration of Key Software Enterprises under the State's Plan” (hereinafter collectively referred to as “Trial Measures”) on 9 August 2012.
Main points clarified in the Trial Measures related to recognition and administration of key software enterprises under the state's plan (hereinafter collectively referred to as “Key Software Enterprises”) are:
General matters
Competent government authorities supervise the recognition：The MOF, MIIT, NDRC, SAT and MOFCOM
Recognition of Key Software Enterprises：The recognition results shall be valid for two years
Criteria of Key Software Enterprises
Software enterprises can apply for Key Software Enterprises if one of the following conditions is met：
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Annual turnover derived from R&D of software products is not less than RMB150 million and the current year should be a profitable year
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Annual turnover derived from R&D of software products is less than RMB150 million but the overall rating of the software enterprise is listed in the top five of the applicants in supported areas announced by the competent government authorities
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Export sales of software products is not less than USD 5 million and the amount counts for 50% or more of the annual turnover
Application documents for the recognition
Application form
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Photocopy of duplicate version of business license, tax registration certificate and software enterprise certificate
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Financial statements and breakdown of turnover derived by R&D of software products / sales of software products independently developed, breakdown of R&D expenses, onshore R&D expenses together with the explanation of the R&D activities participated in the enterprises for the preceding two fiscal years verified by a qualifying firm
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Explanation regarding the total staff headcount, details of staff’s education background, and the percentage of R&D staff headcount over the total staff headcount
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Annual CIT return for the preceding two years stamped by tax authorities in charge
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For an applicant whose export sales of software products is not less than USD 5 million and the export sales amount counts for 50% or more of its annual turnover, its registered certificate for software products, valid exportation contracts and certificates of foreign exchange settlement are required
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Other documents that may be required by the competent government authorities
Recognition flow
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The competent government authorities will announce the supported areas and recognition requirements by the end of April of each year
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The applicants lodge the application with the local competent government authorities after their self assessments
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The local competent government authorities shall review and verify the application documents submitted, notify those who need to submit additional documents by 1 July and transmit the same to the competent government authorities at the state level by the end of August
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The competent government authorities shall establish a database of experts from the relevant areas in order to evaluate the applicants
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Upon the evaluation and comprehensive research and verification done by the competent government authorities, certificates shall be granted to the recognized Key Software Enterprises
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The recognized enterprises shall complete the relevant procedures for tax exemption/reduction with their tax authorities in charge
Our observations
Enterprises that intend to enjoy the preferential tax treatments as Key Software Enterprises should study the Trial Measures as well as Circular 27. In the meantime, some uncertainties may need to be further clarified by the local competent government authorities, e.g., whether a list of designated firms to issue the verification reports will be released by the local competent government authorities, or the qualifying firms are generally referred to CTA and CPA firms. If in doubt, consultations with professionals are always recommended.
You may click this link to access the full content of the Trial Measures:
http://www.ndrc.gov.cn/zcfb/zcfbtz/2012tz/t20120830_502255.htm
You may click this link to access the full content of Circular 27:
http://www.chinatax.gov.cn/n8136506/n8136593/n8137537/n8138502/11947881.html