Integrated Circuit Tax Policy Review: More Investment Opportunities May Come
The integrated circuit and software industries are strategic, basic and leading industries that support economic and social development. Their development requires high investment and long-term persistence. my country does have many "bottleneck" shortcomings in these two areas, such as CPU, lithography machine, database, operating system, etc.
As the Huawei incident became more and more popular, the Chinese government once again paid attention to integrated circuits.
Recently, in order to support the development of the integrated circuit design and software industries, the Ministry of Finance and the State Administration of Taxation recently issued the "Announcement on the Corporate Income Tax Policy for the Integrated Circuit Design and Software Industries" (hereinafter referred to as the "Announcement"), which clarifies the corporate income tax policy preferences for integrated circuit design companies and software companies.
Inventory of integrated circuit tax policies
It is stipulated that from June 24, 2000 to the end of 2010, for general VAT taxpayers who sell integrated circuit products (including single crystal silicon wafers) produced by themselves, after VAT is levied at the statutory tax rate of 17%, the portion of their actual VAT burden exceeding 6% will be refunded upon collection.
Starting from January 1, integrated circuit manufacturing enterprises established in China with an investment of more than 8 billion yuan or an integrated circuit line width of less than 0.25 microns will be exempted from customs duties and import value-added tax on the import of special building materials for clean rooms, supporting systems and integrated circuit production equipment parts and accessories listed in the appendix to this notice.
It is stipulated that for integrated circuit products designed domestically and with independent intellectual property rights, which cannot be produced domestically and are sent abroad for wafer fabrication and processing, the portion of value-added tax that exceeds 6% at the import stage shall be refunded immediately after collection.
The State Council issued a corporate income tax policy to encourage the development of the software industry and the integrated circuit industry, and clearly stated that the preferential period will be calculated from the profit-making year before December 31, 2017.
① It is stipulated that integrated circuit manufacturing enterprises with integrated circuit line width less than 0.8 micron (inclusive) will be exempted from corporate income tax from the first to the second year after being certified, and corporate income tax will be levied at half the statutory tax rate of 25% from the third to the fifth year.
② Integrated circuit manufacturing enterprises with integrated circuit line width less than 0.25 micron or investment exceeding RMB 8 billion shall, after being certified, be subject to a reduced corporate income tax rate of 15%. For those with an operating period of more than 15 years, the preferential period shall be calculated from the profit-making year before December 31, 2017. Corporate income tax shall be exempted from the first to the fifth year, and corporate income tax shall be levied at half the statutory tax rate of 25% from the sixth to the tenth year.
③ After being approved, newly established integrated circuit design enterprises and qualified software enterprises in my country will be exempted from corporate income tax from the first to the second year of profit-making before December 31, 2017, and corporate income tax will be levied at half the statutory tax rate of 25% from the third to the fifth year. Key software enterprises and integrated circuit design enterprises within the national planning layout, if they do not enjoy tax exemption in the current year, can be subject to corporate income tax at a reduced rate of 10%.
Integrated circuit manufacturing enterprises that were established before December 31 but have not yet made a profit, with an integrated circuit line width of less than 0.25 microns or an investment of more than 8 billion yuan, and an operating period of more than 15 years, are exempt from corporate income tax from the first to fifth years from the profit-making year, and corporate income tax is levied at half the statutory tax rate of 25% from the sixth to the tenth year.
① For integrated circuit manufacturing enterprises or projects newly established after January 1 with an integrated circuit line width of less than 130 nanometers and an operating period of more than 10 years, corporate income tax will be exempted from the first and second years, and corporate income tax will be levied at half the statutory tax rate of 25% from the third to the fifth years .
② For newly established integrated circuit manufacturing enterprises or projects with an integrated circuit line width of less than 65 nanometers or an investment of more than 15 billion yuan and an operating period of more than 15 years, corporate income tax will be exempted from the first five years, and corporate income tax will be levied at half the statutory tax rate of 25% from the sixth to the tenth year.
Integrated circuit design companies and software companies that are established in accordance with the law and meet the requirements will calculate the preferential period from the profit-making year before December 31, 2018. Corporate income tax will be exempted from the first to the second year, and corporate income tax will be levied at half the statutory tax rate of 25% from the third to the fifth year, and the preferential treatment will be enjoyed until the end of the period.
It can be seen from the above table that
the preferential income tax policy arrangements for integrated circuit enterprises are actually a continuation of previous policies.
In fact, the integrated circuit industry has a period of growth and development, and before it realizes profits, there are corresponding reductions and exemptions of value-added tax and other taxes.
After making profits, companies need to continuously transform and upgrade, master more advanced technologies, and participate in international competition, which requires more capital accumulation. Therefore, such tax incentive arrangements can give companies greater room for research and development and reproduction.
Statistics on the scale of my country's integrated circuit industry
Customs data showed that China's semiconductor imports in 2018 were US$312.08 billion, with a growth rate of 20%.
Through its own efforts, China has broken through some bottlenecks in the integrated circuit industry . Since 2013, with the establishment of a national integrated circuit industry fund worth hundreds of billions of yuan and strong support from local governments for the integrated circuit industry, China's semiconductor chip sales have maintained a high growth rate of more than 15%.
In 2014, the State Council issued the "Outline for Promoting the Development of the National Integrated Circuit Industry", which elevated the development of the integrated circuit industry to a national strategy and clarified the focus and goals of the development of the domestic integrated circuit industry during the "13th Five-Year Plan". In September of the same year, the National Integrated Circuit Industry Investment Fund was established, with a total amount of over 130 billion yuan in the first phase.
Statistics on integrated circuit sales (Source: Eastmoney.com)
In the 2018 Government Work Report, integrated circuits were listed as the first in the development of the real economy in the "Government Work Report", which shows the importance the national government attaches to this industry.
Previously, the State Council had put forward a requirement in its "Made in China 2025" report that China's chip self-sufficiency rate should reach 40% by 2020 and 50% by 2025. This means that by 2025, the scale of China's integrated circuit industry will account for 35% of the world's total, surpassing the United States to rank first in the world.
According to preliminary statistics, as of May 2019, more than 15 provinces and cities across the country have established local integrated circuit industry investment funds of varying sizes, with a total scale of approximately 500 billion yuan.
Statistics of annual output of integrated circuits (Source of data from the National Bureau of Statistics)
Ren Aiguang, director of the Integrated Circuit Department of the Electronic Information Department of the Ministry of Industry and Information Technology, publicly stated that from the perspective of the three industrial structures of integrated circuit design, manufacturing, and packaging and testing, in 2018, my country's integrated circuit design industry had sales revenue of 251.93 billion yuan, and its proportion increased from 35% in 2012 to 38%; manufacturing industry had sales revenue of 181.82 billion yuan, and its proportion increased from 23% to 28%; packaging and testing industry had sales revenue of 219.39 billion yuan, and its proportion decreased from 42% in 2012 to 34%, and the structure tended to be more optimized.
Integrated Circuit Industry Structure (Source: Internet)
At the same time, the compound growth rate of my country's integrated circuit industry is nearly three times that of the world. In 2018, the global semiconductor market size was US$477.94 billion, with a compound growth rate of 7.3% from 2012 to 2018; in 2018, China's integrated circuit industry sales reached 653.2 billion yuan, with a compound growth rate of 20.3% from 2012 to 2018.
Final Thoughts
The development of the integrated circuit and software industries requires high investment and long-term persistence. The continuity of tax preferential policies can help the integrated circuit industry usher in more investment opportunities.
The continuation of the preferential income tax policy of “two exemptions and three reductions” for integrated circuit design companies demonstrates the country’s determination to vigorously support the development of the IC industry.
At the same time, the policy is fair in that it treats all types of capital with different ownership structures equally. It is expected that the country will continue to increase policy and financial support for the integrated circuit industry in the future to improve the current situation of the domestic integrated circuit industry being "lack of core and soul".
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