Five Chinese governmental departments as the Ministry of Science and Technology ("MOST"), the Ministry of Commerce ("MOFCOM"), the Ministry of Finance ("MOF"), the State Administration of Taxation ("SAT") and the National Development and Reform Commission ("NDRC") jointly issue the circular as Cai Shui [2017] No. 79 for the purpose of extending the enterprise income tax policies for advanced technology service enterprises for nationwide. Shanghai Dongjin finds the following as the main points.

1. Since 1^st January 2017, the following preferential enterprise income tax policies shall be implemented nationwide:

• For the advanced technology service enterprises which have been recognized, the enterprise income tax is levied at a lower tax rate of 15%;
• The part of employee education expenses of the advanced technology service enterprises recognized not exceeding 8% of total wages and salaries is allowed to be deducted during the calculation of taxable income; and the part exceeding 8% is allowed to be carried forward and deducted in subsequent tax years.

2. QUALIFICATION: The advanced technology service enterprises must meet the following conditions simultaneously:

• being legal person enterprises registered within the territory of China (excluding Hong Kong, Macao and Taiwan);
• being engaged in one or several types of the advanced technology service businesses set out in the Recognition Scope of Technologically Advanced Services (for Trial Implementation) (see the appendix for details), adopting advanced technologies or having a strong research and development capacity;
• having employees with a college degree or above accounting for above 50% of all the employees thereof;
• receiving income from the advanced technology service businesses set out in the Recognition Scope of Technologically Advanced Services (for Trial Implementation) accounting for above 50% of the total income thereof in the current year; and
• receiving income from offshore service outsourcing business not lower than 35% of the total income thereof in the current year.

Income from offshore service outsourcing business refers to income obtained by an enterprise from overseas entities for which it or the enterprise directly subcontracted by it provides the information technology outsourcing service (ITO), technical business process outsourcing service (BPO) and technical knowledge process outsourcing service (KPO) stipulated in the Recognition Scope of Technologically Advanced Services (for Trial Implementation) according to the commission contracts reached with such overseas entities.

3. APPLICATION PROCEDURE: Eligible advanced technology service enterprises shall make an application to the local provincial science and technology department. The provincial science and technology department shall, in conjunction with the departments for commerce, finance, taxation and development and reform at the same level, issue a document on recognition upon joint appraisal, and file the list of recognized enterprises and relevant conditions through the "administrative Platform for the Business Handling of National Advanced Technology Service Enterprises" of the MOST. The MOST, MOFCOM, MOF, SAT and NDRC share filing information. Eligible advanced technology service enterprises must fill in basic enterprise information in the "Management Information System for Supervising the Statistics of the Service Trade Sector (Service Outsourcing Information Management Application)" of the MOFCOM, and submit data on time.

4. TAX PERFERENTIAL POLICY: A recognized advanced technology service enterprise shall, by virtue of the relevant recognition document, handle matters with regard to enjoying the preferential enterprise income tax policies with the competent tax authority at the place where it is located. In the case of a change in the related conditions, an advanced technology service enterprise enjoying the enterprise income tax preference shall notify the competent tax authority within 15 days as of the date of the change; if it no longer meets the conditions for enjoying the tax preference, it shall fulfill its tax obligation according to the law.

5. the Detailed Industries of Recognition Scope of Technologically Advanced Services (for Trial Implementation) is also attached to the Circular.

• Information technology outsourcing (ITO), including software R&D and outsourcing, information R&D service outsourcing and information system operation and maintenance outsourcing;
• Technology business process outsourcing (BPO), including enterprise business process design service, enterprise internal management service, enterprise operation service and enterprise supply chain service; and
• Technology knowledge process outsourcing (KPO).

Shanghai Dongjin succeed helping the client’s company apply for such tax preferential policy. If you have any questions, or need our help, please send the email to me.

Mr. Mike Chang

TEL: 0086-21-68868321 / FAX: 0086-21-68868021

Email: mikechang@shanghaiinvest.com