Tax Policy for Key Industries in the Lingang New Area

On July 31st, the Ministry of Finance and the State Administration of Taxation jointly issued the "Notice on the Income Tax Policy for Key Industries in the Lingang New Area of China (Shanghai) Pilot Free Trade Zone", which will be implemented retrospectively from January 1, 2020.

According to the Notice, legal entities engaged in the production or research and development of products in key industries such as integrated circuits, artificial intelligence, biomedicine and civil aviation will be eligible for a lower corporate income tax rate of 15% in the first five years since its date of establishment.

The Notice states that the "eligible legal entity" must satisfy the following conditions: 

  • The enterprise must be a legal entity, and registered in the Lingang New Area from January 1, 2020 (excluding companies that move into the new area from outside areas);
  • The main business is in the "New Area Integrated Circuit, Artificial Intelligence, Biomedicine, and Key Civil Aviation";
  • The enterprise must engage in substantive production and R&D activities in the ‘Catalog of Key Fields and Core Links’;

In addition, the company’s main R&D or sales products must include one key technology product that plays an important or indispensable role within the industrial chain in the key fields, as listed in the “Catalog” attached at the end of the Notice. 

The Notice also requires the Shanghai Municipal Finance and Taxation Department to work with the industry authorities to formulate specific operational management measures for key industrial enterprises and report them to the Ministry of Finance and the State Administration of Taxation for the record.

Lingang New Area is a new area of Shanghai’s Pilot Free Trade Zone (FTZ), established on August 2019 as part of broader measures to improve the business environment for foreign investors in China.

As described by the overview plan, one of the key priorities of the FTZ is to establish a frontier of industrial clusters with key core technologies and capabilities – using preferential tax rates, customs supervision, and enhanced cross-border financial management to attract businesses in key industries within the zone.

Click here to see the original Notice and the “Catalog of Key Fields and Core Links":

Link