The High- and New-Technology Enterprise (HNTE) status is one of China’s core innovation tax policies under China’s Corporate Income Tax Law. The HNTE status offers qualified companies a significant reduction of the Corporate Income Tax (CIT) rate.
Though a national level status, the recognition procedure is entirely managed at the provincial level (municipal level in Shanghai, Beijing, Chongqing, and Tianjin).
- Reduction of the Corporate Income Tax (CIT), from the standard 25% tax rate to 15%, regardless of the company’s investment type and where its headquarters are located.
Once approved, the HNTE status will last for three years, after which the application needs to be re-submitted.
According to the latest revision of the Management Measures for the Recognition of High- and New-Technology Enterprises issued in January 2016 by MOST, MOF and SAT, enterprises must meet the following requirements in order to qualify to HNTE status:
- Being registered in Mainland China for at least one year before the application is submitted
- Own IP rights of the key technologies which show core support to the enterprise’s main products (services). Such rights may be obtained through independent R&D, transfer, donation, or mergers and acquisitions;
- The technologies which show core support to the enterprise’s main products (services) shall belong to one of the areas outlined in the Catalogue of High- and New-Technology Areas Specifically Supported by the State; *
- At least 10% of the total number of the enterprise’s employees should be engaged in R&D and related activities;
- R&D expenditures in the last three financial years should account to a certain percentage of the enterprise’s total sales revenue in the same period:
- Over 5% if total revenue is below 50 million RMB;
- Over 4% if total revenue is between 50 and 200 million RMB;
- Over 3% if total revenue exceeds 200 million RMB.
In addition, at least 60% of the enterprise’s total R&D expenditure must be incurred in China
- Income derived from high- and new-technology products (services) should amount to at least 60% of the enterprise’s total revenue;
- The assessment of the enterprise’ innovation capabilities is in line with relevant standards;
- The enterprise should have not occurred any major safety or quality incident in the previous year, and should have not had any behaviour against the law
* Note: the Catalogue (available at this link in Chinese) lists more than 200 categories of technologies, products, and services in eight large technological areas. Those areas are: 1) Electronic information technologies; 2) Biological and medical technologies; 3) Aviation and space technologies; 4) New materials technologies; 5) High-tech services; 6) New energy and energy conservation technologies; 7) Resources and environmental technologies; 8) Transformation of traditional sectors through high- and new technologies.
HNTE Cultivation Pool
Similarly to other municipalities or provinces across China, the Shanghai municipality has also established a dedicated HNTE cultivation pool for potential HNTE candidates which still do not meet all the necessary requirements.
Enterprises selected in the HNTE cultivation pool will receive funding as well as training and other forms of support from the municipal administration, and will have two years in total for being officially recognised as national HNTEs.
The requirements for entering the cultivation pool are similar to those of the HNTE status, although less strict (e.g. R&D personnel should be 5% of the total instead of 10%; R&D expenditure on total revenue should be 3%). The specific selection procedures are specified in the Implementing Rules for Entering the Shanghai HNTE Cultivation Pool (Trial).
Date of publication
3 January 2020
Deadline for submitting applications
Applications can be submitted latest by 20 September 2020. Applications will be screened and pre-evaluated by district-level authorities every month, before being forwarded to the municipal-level authority.
Applicants must first conduct a self-evaluation of the eligibility criteria, and upload it through its account on the national HNTE Certification Management Platform. The applicant will then receive a 22-digit code by relevant authorities if the self-evaluation is compliant with the eligibility criteria for HNTE status.
Afterward, the applicant should apply through the web portal of the Shanghai Municipal Science & Technology Commission, which is responsible for evaluating the application materials and for granting the final recognition of the HNTE status.
International participation: opportunities and figures
Domestic and foreign-invested enterprises (FIEs) are equally eligible to apply as long as they comply with the requirements listed above. However, it is commonly believed that the eligibility requirements might be more challenging to meet for FIEs. **
Figures, however, show that FIEs are actively participating in the programme. According to the list of the second batch of approved HNTEs in 2018 (available at this link), 152 out 2,324 newly-approved HNTEs were foreign-invested enterprises. Although the majority consisted of enterprises invested or incorporated in Hong Kong, Taiwan or off-shore jurisdictions, or founded by foreign nationals ethnic Chinese, several cases of western wholly foreign-owned enterprises were also identified, including: TÜV Rheinland, Honeywell, BASF New Materials, Magneti Marelli, Siemens Healthineers, Loesche, PerkinElmer, etc. The vast majority were either German or from the US, although Japanese companies were also numerous.
** Note: for instance, the European Union Chamber of Commerce in China in its Position Papers argues that the requirement on core IP may create an uneven playing field between domestic and international companies. This would be because the main technologies of the Chinese affiliates of foreign companies in part may still rely on the main technologies and products initially developed outside China and is still owned there, despite these companies now playing an increasingly important role in the Chinese innovation ecosystem.
Original announcement in Chinese (copy-paste into browser)
Funding programmes available in Shanghai (including a more detailed factsheet on the HNTE status in Shanghai, as well as lower-level equivalents such as the Pudong and Minhang districts’ “R&D organisation” statuses.