China’s Ministry of Finance and the State Taxation Administration issued an announcement on 20 April 2023 (Announcement [2023] No. 17) that enables qualifying integrated circuit (IC) enterprises to enjoy an extra 15% input VAT credit. The new policy, which will apply for five years, is designed to support the development of IC enterprises in the country.
The salient points of the announcement are as follows:
- From 1 January 2023 to 31 December 2027, qualifying general VAT taxpayers engaging in IC design, manufacturing, equipment, materials, packaging and testing may be eligible for an extra 15% super input VAT credit. As a result, such enterprises are entitled to credit eligible input VAT at a rate of 115%.
- The additional 15% deduction is not available where the input VAT relates to the purchase of chips or to IC enterprises engaged solely in exports and cross-border business (if the enterprise partially engages in such activities, the input VAT relating to those activities cannot benefit from the extra input VAT credit).
The government will be releasing detailed rules to qualify for the extra credit, how the measures will be administered and a list of qualifying enterprises.
Comments
With the government to be issuing a list of qualifying enterprises, IC entities should consider engaging in advance discussions with the relevant authority to determine whether they will be eligible for the extra input VAT credit.
The tax authorities will impose requirements for qualifying enterprise, such as retaining all accounting vouchers and supporting documents and possibly requiring a verification report from a qualified third party to prove the authenticity of the input VAT. Affected IC enterprises may wish to obtain clarification of the requirements from the in-charge tax authorities and involve a professional agent to provide a verification report.
Gordon Gao
Jack Shen
BDO in China
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