Measures for the Administration of the Recognition of Hi-tech Enterprises

Article 2: For the purposes of these Measures, the term “hi-tech enterprise” means a tax-resident enterprise registered in China (excluding Hong Kong, Macao and Taiwan) for at least one year that falls within the Hi-tech Sectors Supported by the State on a Priority Basis (see the Appendix), and conducts research and development and applies technological achievements practically on an ongoing basis, with such achievements forming the core of the enterprise's self-controlled intellectual property rights, and that uses the same as the basis for carrying out its business activities.

Article 3: The administration of the recognition of hi-tech enterprises shall comply with the principles of outstanding enterprise entities, encouraging technical innovation, carrying out dynamic administration and adherence to fairness and impartiality.

Article 4: A hi-tech enterprise recognized as such in accordance herewith may apply for favourable tax treatment in accordance with relevant provisions such as the Enterprise Income Tax Law, its Implementing Regulations, the PRC Law on the Administration of the Levy and Collection of Taxes (the Tax Levy and Collection Law) and the Implementing Rules for the PRC Law on the Administration of the Levy and Collection of Taxes (Revised)

Article 5: The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation shall direct, administer and monitor the recognition of hi-tech enterprises nationwide.

PART TWO: ORGANIZATION AND IMPLEMENTATION

Article 6: The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation shall form the National Steering Committee for the Administration of the Recognition of hi-tech enterprises (the Steering Committee) whose principal duties shall be:

(1) determining the orientation of the administration of the recognition of hi-tech enterprises and considering reports on the administration of the recognition of hi-tech enterprises

(2) coordinating and resolving major issues encountered in the course of recognition work and the implementation of relevant policies

(3) rendering decisions on major disputes arising in the course of the recognition of hi-tech enterprises, and monitoring and inspecting recognition work around the country and

(4) giving advice for rectification to regions where major problems have arisen in the work associated with the recognition of hi-tech enterprises.

Article 7: A general office shall be established under the Steering Committee in the Ministry of Science and Technology. Its principal duties shall be:

(1) submitting reports on the administration of the recognition of hi-tech enterprises

(2) organizing and conducting inspections of the administration of the recognition of hi-tech enterprises

(3) being responsible for the administration of the record filing of the qualifications of experts involved in the recognition of hi-tech enterprises

(4) establishing and managing the Network for the Administration of the Recognition of hi-tech enterprises and

(5) other tasks assigned to it by the Steering Committee.

Article 8: The science and technology administrative authority of each province, autonomous region, municipality directly under the central government and city with independent development plans together with the finance and tax authorities at the same level shall form an authority for the administration of the recognition of hi-tech enterprises in their jurisdictions (the Recognition Authority) that shall carry out the following tasks in accordance herewith:

(1) being responsible for the recognition of hi-tech enterprises in its jurisdiction

(2) accepting requests submitted by enterprises for the review of their qualifications as hi-tech enterprises

(3) conducting monitoring inspections of enterprises that have been recognized, and accepting, checking and handling relevant tip-offs and

(4) selecting experts to participate in the work associated with the recognition of hi-tech enterprises and submitting their names to the general office of the Steering Committee for the record.

Article 9: Once an enterprise has obtained qualifications as a hi-tech enterprise, it shall carry out the tax reduction or tax exemption procedures with the competent tax authority in accordance with Article 4 hereof.

If the tax reduction or tax exemption conditions of an enterprise that enjoys a tax reduction or tax exemption change, it shall report the same to the competent tax authority within 15 days from the date of the change. If it no longer satisfies the conditions for the tax reduction or exemption, it shall perform its tax payment obligations in accordance with the law. If it fails to pay tax in accordance with the law, the competent tax authority shall pursue payment thereof. Additionally, if the competent tax authority, in the course of implementing favourable tax treatment policies, discovers that an enterprise does not have qualifications as a hi-tech enterprise, it shall request that the Recognition Authority conduct a review. While the review is pending, it may suspend the enterprise's tax reduction or exemption.

PART THREE: CONDITIONS AND PROCEDURE

Article 10: For recognition as a hi-tech enterprise an enterprise must satisfy all of the following conditions:

(1) being an enterprise registered in China (excluding Hong Kong, Macao and Taiwan) and owning the self-controlled intellectual property rights in the core technology of its principal products (or services) through its own development, transfer, acceptance of the donation, or mergers or acquisitions during the last three years or through an exclusive licence therefor of at least five years

(2) its products (or services) falling within the scope specified in the Hi-tech Sectors Supported by the State on a Priority Basis

(3) science and technology personnel with at least an undergraduate degree accounting for at least 30% of its total workforce during the years in question, and the research and development personnel therein accounting for at least 10% of its total workforce during the years in question

(4) engaging in research and development activities on an ongoing basis in order to obtain new scientific and technological (excluding humanities and social science) knowledge, creatively apply new scientific and technological knowledge or substantively improve its technology, products (or services) and, during the most recent three financial years, the percentage of its total sales revenues accounted for by its total research and development outlays satisfying the following requirements:

(i) for an enterprise with sales revenue of less than Rmb50 million during the most recent year, a percentage of not less than 6%

(ii) for an enterprise with sales revenue of at least Rmb50 million but less than Rmb200 million during the most recent year, a percentage of not less than 4% and

(iii) for an enterprise with sales revenue of at least Rmb200 million during the most recent year, a percentage of not less than 3%

furthermore, its total research and development outlays incurred in China shall account for not less than 60% of the total of all of its research and development outlays if the enterprise has been registered and established for less than three years, the calculation shall be made based on the actual number of years it has been in operation

(5) the revenue from its hi-tech products (or services) accounting for at least 60% of its total revenue for the years in question and

(6) its indicators, such as the management level of its research and development organization, capacity to apply practically its scientific and technological achievements, the quantity of its self-controlled intellectual property, sales and total asset growth, etc., satisfying the requirements of the Guidelines for the Administration of the Recognition of Hi-tech Enterprises (formulated separately).

Article 11: The procedure for the recognition of hi-tech enterprises is set forth below:

(1) self-assessment and application by the enterprise

the enterprise logs on to the Network for the Administration of the Recognition of Hi-tech Enterprises and conducts a self-assessment by referring to the conditions set forth in Article 10 hereof if it deems itself to satisfy the recognition conditions, it can submit an application for recognition to the Recognition Authority

(2) submission of the following application materials:

(i) application for recognition as a hi-tech enterprise

(ii) duplicate of its business licence and (a photocopy of) its tax registration certificate

(iii) intellectual property certificate (exclusive licence contract), production approval document, new product or new technology evidentiary (novelty retrieval) materials, product quality inspection report, proof of approval of science and technology plan at the provincial level or above and other relevant supporting documentation

(iv) number of persons in its workforce, the structure of their educational backgrounds and a statement on the percentage of its workforce that is accounted for by research and development personnel

(v) a chart of its research and development outlays during the most recent three financial years (if it has been in business for less than three years, a chart based on the actual number of years it has been in business) authenticated by a qualified intermediary organization, accompanied by materials explaining its research and development activities and

(vi) financial statements for the most recent three financial years (including balance sheets, profit and loss statements and cash flow statements if it has been in business for less than three years, those for the years it has actually been in business) authenticated by a qualified intermediary organization, and a chart of its technology related revenues

(3) compliance review

the Recognition Authority shall establish a database of evaluation experts for the recognition of hi-tech enterprises based on the application materials submitted by the enterprise, the Recognition Authority selects experts from the expert database to conduct a review and give their opinion on the recognition of the applicant enterprise

(4) recognition, announcement and record filing

the Recognition Authority carries out the recognition procedure if the enterprise is recognized as a hi-tech enterprise it is posted on the Network for the Administration of the Recognition of Hi-tech Enterprises for 15 working days, and if there are no objections, it is then reported to the general office of the Steering Committee for the record, the outcome of the recognition procedure is announced on the Network for the Administration of the Recognition of Hi-tech Enterprises and the enterprise is issued a centrally printed Hi-tech Enterprise Certificate.

Article 12: Qualifications as a hi-tech enterprise shall be valid for three years from the date of issuance of the certificate. The enterprise shall submit an application for review three months prior to the expiration of the term of validity. If the enterprise fails to submit a review application or if it fails to pass the review, its qualifications as a hi-tech enterprise shall automatically become null and void at the expiration of the term.

Article 13: For a review, a hi-tech enterprise must submit a report on its research and development and other such technical innovation activities during the most recent three years.

When the review is conducted, the focus of the examination shall be Item (4) of Article 10. If the enterprise satisfies the conditions, posting and record filing shall be carried out in accordance with Item (4) of Article 11.

The qualifications of a hi-tech enterprise that has passed a review shall be valid for three years. If, at the expiration of such term, the enterprise again submits an application for recognition, matters shall be handled in accordance with Article 11 hereof.

Article 14: If a material change in the business engaged in, production technology activities, etc. by or of a hi-tech enterprise occurs (e.g. merger, acquisition, reorganization, change of business, etc.), it shall report the same to the Recognition Authority within 15 days. If the enterprise no longer satisfies the conditions specified herein after the change, its qualifications as a hi-tech enterprise shall be terminated from the year in question. If the enterprise needs to apply for recognition as a hi-tech enterprise, it shall do so in accordance with Article 11 hereof.

If a hi-tech enterprise changes its name, the Recognition Authority shall issue it a new recognition certificate after confirmation, posting and record filing. The number and term of validity of such certificate shall remain unchanged.

PART FOUR: PENAL PROVISIONS

Article 15: The qualifications of an enterprise that has been recognized as a hi-tech enterprise shall be cancelled if:

(1) in the course of its application for recognition the enterprise provided false information

(2) it evaded taxes, committed tax fraud, etc.

(3) it is involved in a major safety or quality related incident or

(4) it commits a violation of environmental or other such laws or regulations and is penalized by the relevant authority therefor.

The Recognition Authority will not accept, for a period of five years, recognition applications from an enterprise whose qualifications as a hi-tech enterprise have been cancelled.

Article 16: Organizations and persons involved in the work of recognizing hi-tech enterprises bear an obligation of good faith and compliance in respect of the recognition work that they do and bear an obligation of confidentiality in respect of the relevant data and information of enterprises that apply for recognition. Violations of relevant hi-tech enterprise recognition requirements or discipline shall be dealt with accordingly.

PART FIVE: SUPPLEMENTARY PROVISIONS

Article 17: Implementation of the existing Conditions and Measures for the Recognition of Hi-tech Enterprises Located Outside of State Hi-tech Industry Development Zones (Guo Ke Fa Huo Zi [1996] No.018) and the existing Conditions and Measures for the Recognition of Hi-tech Enterprises in State Hi-tech Industry Development Zones (Guo Ke Fa Huo Zi [2000] No.324) shall cease from the date of implementation hereof.

Article 18: The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation are in charge of the interpretation hereof.

Article 19: The Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation will formulate the Guidelines for the Administration of the Recognition of Hi-tech Enterprises separately.

Article 20: These Measures shall be effective as of January 1 2008.

Appendix: Hi-tech Sectors Supported by the State on a Priority Basis (omitted)