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May 23, 2019

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Tax break for chip design, software firms

CHINA is making preferential tax treatment available to more chip design and software firms in an effort to support domestic industries amid escalating trade tensions with the United States.

In line with a State Council directive in early May, the finance ministry said yesterday that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before the end of 2018. Until now, such tax relief was only available to firms that reported a profit by the end of 2017.

China’s continued support for the tech industry comes after US President Donald Trump raised tariffs on US$200 billion worth of Chinese imports to 25 percent from 10 percent.

The United States also added the telecom giant Huawei Technologies Co Ltd to a trade blacklist last week, effectively banning US companies from doing business with the Chinese firm.

But investors and analysts say Huawei’s troubles could accelerate a long-term campaign in China to replace imported technologies.

China has announced a series of measures to reduce companies’ tax burdens. The move to give more chip design firms a tax holiday did not include any change in the tax. During their third to fifth years of operation, the rate remains 12.5 percent.


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