China Clarifies Corporate Income Tax Reductions and Exemptions for Technology Transfers

November 1, 2013 Posted by China Briefing Reading Time: 3 minutes

Nov. 1 – China’s State Administration of Taxation (SAT) released the “Announcement on Issues Concerning the Reduction and Exemption of Corporate Income Tax for Technology Transfer Income (SAT Announcement [2013] No. 62, hereinafter referred to as ‘Announcement’)” on October 21, which clarifies the scope of income derived from technology transfers. Detailed information can be found below.

According to China’s Corporate Income Tax Law, income derived from technology transfers by an enterprise is entitled to corporate income tax reductions and exemptions. The SAT further clarifies that “income from technology transfer” refers to the payment received by the party upon the performance of the technology transfer contract, excluding the non-technological income derived from the sale or transfer of equipment, instruments, components and raw materials. Moreover, the income derived from technological consultation, service or training, which is separable from the technology transfer, shall not be deemed as income from technology transfer.

However, in practice, it is hard to define what types of income are separable from technology transfers and this has caused confusion in the actual implementation of tax reduction and exemption policies.

In response, the Announcement provides that income from technological consultation, service or training that can be deemed as technology transfer income refers to the income gained by the transferor from providing necessary technological consultation, services or training to help the transferee master the transferred technology and utilize such to realize industrialization. Therefore, the consultation, service and training provided before the technology being put into operation and after industrialization shall not be deemed as income from technology transfer.

Moreover, the income from technological consultation, services or training which can be deemed as technology transfer income shall meet the following two conditions to enjoy tax reductions and exemptions:

The technological consultation, service or training related to the technology transfers shall be included in the technology transfer contract; and
The income gained from the technological consultation, service or training shall be collected together with the income from the technology transfer project.

According to relevant provisions on technology contract registration, as long as the technological consultation, service or training related to the technology transfer has been included in the technology transfer contact, it shall be deemed as a necessary service inseparable from the technology transfer.

The Announcement is scheduled to take effect on November 1, 2013.

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