China maintains tariff and import tax incentives for certified foreign R&D centers

By Grace Lin, Head of Tax, Cuatrecasas, Shanghai

The Chinese government issued two notices (i.e., Notice No. 23/2021 and Notice No. 24/2021) in April concerning the tariff and import tax policies to support technology innovation under the 14th Five-Year Plan.

Under these two notices, certified foreign research and development (R&D) centers are exempt from tariff, import value-added tax (VAT), and import consumption tax when they import supplies used for scientific research and technological development that cannot be produced in China or that cannot meet performance demand when produced in China.

The above incentive polices are applicable from January 1, 2021, to December 31, 2025, making them continuous with the policies under the 13th Five-Year Plan that expired on December 31, 2020.

The governmental competent authorities will issue a catalogue of tax-exempt import goods and a list of certified foreign R&D centers. The tariff and import taxes that were paid and should have been exempt will be refunded (except for VAT that has already been credited).

To qualify as a foreign R&D center, several conditions apply regarding minimum investment amounts, personnel, and equipment value.

For an independent legal entity, the total investment amount as stated in the official foreign investment record-filing form must be at least USD 8 million; for an internal department or a branch without separate legal status, the total investment of assets to set up the R&D center must be at least USD 8 million.

In addition, the number of personnel dedicated to basic research, applied research and experimental development must be at least 80. Finally, the accumulated original value of the equipment purchased since the foreign R&D center was set up must be at least RMB 20 million (approximately USD 3 million).

The above set of conditions applies to all R&D centers regardless of when they were set up. The policy under the 13th Five-Year Plan applied a different set of conditions to R&D centers set up before September 30, 2009, and those after. The new policy also lowers the required number of personnel to make it more achievable.

— Grace Lin is Head of Tax, Cuatrecasas, Shanghai.