China: A Summary Of China´s Corporate Income Tax Incentives

Last Updated: 15 July 2008
Article by Fuli Cao

Prior to 2008, China had two Corporate Income Tax ("CIT") systems. One applied to foreign enterprises and Chinese enterprises with foreign investment of 25 percent or more; the other applied to all other enterprises. Different tax incentives were provided under the two systems. On March 16, 2007, China passed the Corporate Income Tax Law (the "CIT Law"), which came into effect on January 1, 2008. The CIT Law has unified the two CIT systems, reduced the CIT rate from 33 percent to 25 percent, and provided unified tax incentives to both domestic and foreign-invested enterprises. The Detailed Rules for the Implementation of Corporate Income Tax Law (the "CIT Rules") and various tax circulars were issued to clarify the tax incentives offered by the CIT Law.

Enterprises established prior to March 16, 2007, are eligible for certain types of relief during a transition period, including:

  • If an enterprise enjoyed a 15 percent CIT rate under the old tax laws and regulations, the applicable rates will be 18 percent, 20 percent, 22 percent, 24 percent, and 25 percent for 2008, 2009, 2010, 2011, and 2012 respectively.

  • If an enterprise was granted a tax holiday or reduced rate for a fixed period under the old laws and regulations, it can continue the tax holiday or reduced rate during the fixed period. However, if the enterprise did not start the tax holiday in 2007 due to a lack of profits, 2008 will be deemed to be the first profit-making year.

What CIT incentives other than the transitional relief are available? What CIT incentives are available to Chinese resident enterprises established today? The table below summarizes the major CIT incentives provided by the CIT Law, the CIT Rules, and tax circulars published through June 30, 2008.





Interest from state treasury debts

Tax exemption

Interest derived from the state treasury debts issued by the finance department of the State Council.

CIT Law Art. 26 (1)

CIT Rules Art. 82

Dividends paid between resident enterprises

Tax exemption

Dividends, profit distributions, and other returns on equity investments derived by a resident enterprise from its direct investment in another resident enterprise, except dividends derived from publicly issued and traded shares of a resident enterprise that are held for less than 12 consecutive months.

CIT Law Art. 26 (2)

CIT Rules Art. 83

Agriculture, forestry, animal husbandry, fishery

Tax exemption

Income derived from the following projects:

  • Growing of vegetables, grains, tuber crops, oil plants, beans, cotton, hemps, sugar crops, fruits, and nuts

  • The selection and cultivation of new agricultural species

  • The growing of Chinese medicinal herbs

  • The cultivation and growing of forests

  • The rearing of livestock and poultry

  • The harvesting of forestry products

  • Irrigation, preliminary processing of agricultural products, veterinary services, promotion of agricultural technologies, operation and maintenance of agricultural machineries, and similar agricultural, forestry, animal husbandry, fishery services projects

  • Fishing on the high seas.

CIT Law Art. 27 (1)

CIT Rules Art. 86 (1)

50% reduction in CIT rate

Income derived from the following projects:

  • The growing of flowers, tea plants, and other crops used for beverages and spices;

  • Sea and inland water aquaculture.

CIT Law Art. 27 (1)

CIT Rules Art. 86 (2)

Public infrastructure

3-year exemption and 3-year 50% reduction, starting from the year in which the project first generates operating income

Ports and wharfs, airports, railways, highways, urban public transportation, electric power, water suppliers, etc. as prescribed in the Catalog of Public Infrastructure Projects Eligible For Preferential Corporate Income Tax Treatment.

CIT Law Art. 27 (2)

CIT Rules Art. 87

Synergistic utilization of resources

10% revenue exclusion in computing taxable income

Revenue derived from the use of the resources prescribed in Catalogue of Preferential Corporate Income Tax Treatments for Synergistic Utilization of Resources as the raw materials in the production of goods. The proportion of the amount of raw materials used in production shall not be lower than the criteria prescribed in the catalogue.

CIT Law Art. 33

CIT Rules Art. 99

Security investment funds

Temporary tax exemption

Income derived by securities funds from securities market, including stock and bond trading, dividends, interest, and other income.

Income derived by investors from securities funds.

Gain derived by investment securities fund managers from trading stocks and bonds using the funds.

Cai Shui (2008) No.1 Art. 2

Environmental protection and energy or water conservation

3-year exemption and 3-year 50% reduction, starting from the year in which the project first generates operating income

Includes public sewerage treatment, public refuse treatment, synergistic development and utilization of methane, technological innovation in energy conservation and emission reduction, sea water desalination, and similar projects. The qualification criteria and the scope shall be formulated by the departments of the State Council in charge of finance and taxation in conjunction with relevant departments of the State Council, and shall be promulgated and implemented with the approval of the State Council.

CIT Law Art. 27 (3)

CIT Rules Art. 88

10% of the amount invested in specialized equipment may be credited against tax payable for the current year; the excess credit may be carried forward for 5 years

Purchase and actual usage of specialized equipment for environmental protection, energy or water conservation, and safe production as prescribed in Catalogue of Preferential Corporate Income Tax Treatments for Specialized Equipment in Environmental Protection, Catalogue of Preferential Corporate Income Tax Treatments for Specialized Equipment in Energy or Water Conservation, and Catalogue of Preferential Corporate Income Tax Treatments for Specialized Equipment in Safe Production. Tax benefits will be clawed back if the enterprise subsequently transfers or leases the equipment within 5 years.

CIT Law Art. 34

CIT Rules Art. 100

Small-scale enterprises with low profitability

Reduced rate of 20%

For industrial enterprises, the taxable income for the year shall not exceed RMB300,000, total number of employees shall not exceed 100, and total assets shall not exceed RMB30 million.

For all other enterprises, the taxable income for the year shall not exceed RMB300,000, total number of employees shall not exceed 80, and total assets shall not exceed RMB10 million.

CIT Law Art. 28

CIT Rules Art. 92

Employment of disabled employees

Additional deduction of 100% of salaries paid to disabled employees

The relevant rules of the Law on Safeguard of Disabled Persons shall apply with respect to the determination of the qualifications of the disabled personnel.

CIT Law Art. 30 (2)

CIT Rules Art. 96

Venture capital

70% of qualified investments may be set off against the taxable income; the excess amount can be carried forward

A venture capital enterprise has invested, in the form of equity investment, in a medium- to small-sized high and new technology enterprise that has not been listed on a stock exchange for more than 2 years.

CIT Law Art. 31

CIT Rules Art. 97

Western Region (Chongqing, Sichuan, Guizhou, Yunnan, Tibet, Shanxi, Gansu, Ningxia, Qinghai, Xinjiang, Inner Mongolian, and the Guangxi; also applies to Xiangxi Tujia-Miao Autonomous Prefecture in Hunan Province, Enshi Tujia-Miao Autonomous Prefecture in Hubei Province, and Yanbian Korean Autonomous Prefecture in Jilin Province)

Reduced rate of 15% through December 31, 2010

An enterprise set up in the Western Region with main business in encouraged industries according to relevant investment catalogues. For a domestic enterprise, 70% or more of its revenue should be derived from the business listed in The Catalogue of Industries, Products, and Technologies Whose Development Are Currently Encouraged by the State (revised in 2000); for a foreign-invested enterprise, 70% or more of its revenue should be derived from the business listed in The Catalogue of Industries for Guiding Foreign Investment and the Catalogue of Preferred Industries for Foreign Investment in Central and Western Region.

Guo Fa (2007) No.39 Art. 2

Cai Shui (2001) No.202

2-year exemption and 3-year 50% reduction from the first profit-making year for foreign-invested enterprises and from the first operating year for domestic enterprises

An enterprise set up in the Western Region for which at least 70% of its total revenue is derived from the transportation, electricity, water conservancy, post, broadcasting, and television industries.

Ethnic autonomous regions

Reduction or exemption for the part of CIT as retained by the ethnic autonomous regions

Determined by autonomous prefectures and counties subject to approval of the government at the provincial level.

CIT Law Art. 29

CIT Rules Art. 94

Technology transfer

Tax exemption

Income from technology transfer that does not exceed RMB5 million in a year.

CIT Law Art. 27 (4)

CIT Rules Art. 90

50% reduction

Income from technology transfer that exceeds RMB5 million in a year.

High and new technology enterprise

Reduced rate of 15%

  • Must meet all of the following qualifications:

  • Registered in China for at least one year.

  • Owns IP right or exclusive right to use the IP of core technology in connection with the main products (services) of the enterprise.

  • Products or services must be within the scope of the Catalogue of High and New Technology Areas Specifically Supported by the State. These areas are electronic information technology, biological and medical technology, aviation and space technology, new materials technology, high-tech services, new energy and energy conservation technology, resources and environmental technology, and the transformation of traditional sectors through new high-tech.

  • At least 30% of the enterprise's employees should be college graduates (three-year program or above); among the qualified staff, at least 10% of the total number of employees should be engaged in R&D activities.

  • R&D expenditures for the last three accounting years should at least 6%, 4%, and 3% of total revenue if prior-year revenue is below RMB50 million, RMB50 million to 200 million, and more than RMB 200 million, respectively. At least 60% of the minimum R&D expenditure must be incurred in China.

  • Current-year income from high and new technology products (services) is at least 60% of total revenue.

  • Meets all requirements respecting the rating of R&D management, the capacity to convert R&D outcomes, the number of IP rights, and the growth of sales and total assets as provided in Administrative Working Guidelines of Assessment of High and New Technology Enterprises.

CIT Law Art. 28 (2)

CIT Rules Art. 93

Guo Ke Fa Huo (2008) No.172

2-year exemption, 3-year 12.5% reduction, and then 15%, starting from the year in which the project first generates operating income

High and New Technology Enterprises established in Shenzhen, Xiamen, Zhuhai, Shantou, Hainan, and Shanghai Pudong New Area on or after January 1, 2008.

Guo Fa (2007) No.40

R&D expenditures

150% deduction or amortization based on 150% of capitalized expenses

R&D expenditure for development of new technologies, new products, and new technological process.

CIT Law Art. 30 (1)

CIT Rules Art. 95

Fixed assets depreciation

Shorten depreciable period by 40% or accelerated depreciation

Fixed assets that are upgraded and replaced frequently due to advancement in technologies or are exposed to constantly high levels of vibration or corrosion.

CIT Law Art. 32

CIT Rules Art. 98

2-year depreciation or amortization

Acquired software and

Approval of tax authority.

Cai Shui (2008) No.1 Art. 1 (5)

Shorten depreciable period to minimum 3 years

Manufacturing equipment for integrated circuit production enterprises and

Approval of tax authority.

Cai Shui (2008) No.1 Art. 1 (7)


Integrated circuit design

CIT exclusion of VAT refund

Software enterprises and integrated circuit design enterprises;

VAT refund is in connection with the sale of self-developed software products; and

The refund is used for software R&D and the expansion of production.

Cai Shui (2008) No.1 Art. 1 (1) & (6)

2-year exemption and 3-year 50% reduction from the first profit-making year

Newly established software enterprises or newly established integrated design enterprises.

Cai Shui (2008) No.1 Art. 1 (2) & (6)

Reduced rate of 10%

Key software/integrated circuit design enterprises included in the State plan, if not otherwise eligible for CIT exemption that year.

Cai Shui (2008) No.1 Art. 1 (3) & (6)

Employee training expenses can be deducted as incurred

Software enterprises and integrated circuit design enterprises (staff education expenses for other enterprises are limited to 2.5% of total salary).

Cai Shui (2008) No.1 Art. 1 (4) & (6)

Integrated circuit production

Reduced rate of 15%

Integrated circuit production enterprise with a total investment exceeding RMB8 billion or whose integrated circuit width is less than 0.25um

Cai Shui (2008) No.1 Art. 1 (8)

5-year exemption and 5-year 50% rate reduction from the first profit-making year and then reduced rate of 15%

Integrated circuit production enterprise with a total investment exceeding RMB8 billion or whose integrated circuit width is less than 0.25um, with an operating period of no less than 15 years.

Cai Shui (2008) No.1 Art. 1 (8)

2-year exemption and 3-year 50% reduction from first profit-making year

Integrated circuit production enterprise whose circuits are less than 0.8um.

Cai Shui (2008) No.1 Art. 1 (9)

Refund of 40% of tax paid on profit reinvested from January 1, 2008, to December 31, 2010

An investor in integrated circuit production or packaging enterprise reinvests after-tax profits in 1) the same enterprise by increasing registered capital or 2) other integrated circuit production or packaging enterprises by establishing new enterprises; the reinvestment period shall not be less than 5 years.

Cai Shui (2008) No.1 Art. 1 (10)

Refund of 80% of tax paid on profit reinvested from January 1, 2008, to December 31, 2010

Investors that are economic organizations use the after-tax profits from domestic enterprises as capital to establish integrated circuit production enterprises, integrated circuit packaging enterprises, or software production enterprises in the Western Region; the reinvestment period shall not be less than 5 years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.