Reasons to invest in China's strategic emerging industries
July 15, 2010 | BY
clpstaff &clp articles &Authorities formulating attractive subsidies and tax breaks
Businesses in seven new strategic industries can expect significant tax incentives and subsidies by the end of this year.
New financial measures (New Measures) are being formulated by the Ministry of Finance (Mof) and other regulators to support the development of the following new strategic industries: new energy, energy conservation and environmental protection industries, clean fuel vehicles, new materials, biomedical industry, high-end equipment manufacturing and information technology.
These industries were announced in February 2010 in the draft version of the Decision on Expediting Cultivation of New Strategic Industry, jointly issued by the National Development and Reform Commission (NDRC), the Ministry of Science and Technology, the Ministry of Finance and the Ministry of Industry and Information Technology.
China's Plan on New Strategic Industries (the plan) will be promulgated in September, and, as announced on June 24, the New Measures are expected to follow and be available by the end of 2010. After the plan's release, a detailed development plan for each strategic industry and financial support measures will be issued.
Beijing-based Gide Loyrette Nouel tax specialist, Guo Min stressed that financial subsidies and incentives were “crucial to the development of new strategic industries.”
Guo pointed out that the NDRC confirmed the seven strategic industries would be a “highlight” of China's upcoming 12th Five-Year Development Plan. With this in mind, she added, “substantial incentives or subsidies may be expected from the New Measures, which is very likely to pull in a significant amount of both domestic and foreign investment”.
The proposed New Measures will be more definitive than the tax incentives offered in the latest foreign direct investment (FDI) rules that came out in April 2010. “They should focus on the provision of industry-oriented incentives and tax considerations should be more specific,” said Guo.
The New Measures to support the emerging industries could include bank loans with favourable conditions, financial subsidies (possibly in the form of a tax refund), and the establishment of special funds.
Direct tax incentives may be available and could include:
1. Periodical enterprise income tax exemption or reduction on related income
2. Reduced enterprise income tax rate
3. Direct value-added tax (VAT) exemption or refund of VAT that has been paid to the tax authorities on certain income derived
4. Possible import VAT and customs duty exemption on the import of advanced equipment and spare parts
5. Increase of export VAT refund rates for certain goods
6. Business tax exemption.
Guo believes that the new energy industry will benefit the most from the new measures. “Many countries consider the development of a low-carbon economy and the new energy industry as the linch-pin of their economic rise or revival,” she said.
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