Although HNTE (High and New Technology Enterprises) and TSME (Technology-Based Small and Medium Enterprises) statuses are the most common in China tax policy, another core innovative policy is ATSE, which stands for Advanced Technology Service Enterprises. ATSE is used to encourage and protect Information Technology Outsourcing (ITO) and all manner of Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) that service overseas business or entities.
This ATSE incentive was originally launched back in 2016 from the Suzhou Industrial Park. It was launched domestically nationwide a year later in 2017 and went on to reduce Corporate Income Tax rates for all ATSEs from 25% to 15%, which is a rate similar to what HNTEs receive.
All ATSEs have zero value-added tax (VAT) rates that give a provision that affects offshore services. In essence, it means that the ATSE is exempt from paying VAT where this tax policy can apply. It might also mean that they get a tax exemption credit or some kind of refund method that uses an applicable VAT general tax computation.
ATSEs used to receive other preferential treatments such as the option to deduct employee education expenses that did not exceed 8% of the company?s salaries from the fully taxed annual income of the Corporate Income Tax. And if that does exceed 8%, it could then be carried forward to years into the future. But from 1 January 2018, this deduction was made available to all enterprises unless otherwise informed.
ATSE Qualification Criteria
There is a list of requirements that enterprises in China must follow to be a qualified ATSE. Please see the requirements below:
- They must be registered in China, although Taiwan, Macao, and Hong Kong are excluded.
- Must be engaged in one of the key advanced technology service business categories that are included in the Scopes of Recognized Advanced Technology Service Businesses that are made to adopt businesses that have strong research and development principles.
- There needs to be at least 50% of the enterprise’s staff that have a college degree or better.
- There needs to be at least 50% of the company’s total yearly revenue that comes directly from the profit generated via advanced technology services in the Scope.
- Any revenue that was generated from offshore service outsourcing needs to be 35% or more of the revenue that was generated the year before.
The phrasing “any revenue that was generated from offshore service outsourcing” means the revenue that said enterprise made via its overseas entities by providing services like KPO, ITO, and BPO that are listed in the Scope for the overseas entities by the enterprise or any other companies that are subcontracted in a legally binding contract signed by both the overseas entities and the enterprise themselves.
Application Process for China ATSEs
If the enterprise qualifies for becoming an ATSE and fulfills all the criteria, they will have to contact the department of science technology at their local town hall to apply, fill in the forms, and submit the documents that are required.
Provincial-level departments of science and technology in tandem with other departments that cover taxation, finance, commerce, and commissions of development and reform proceed with the review process. After which, these departments will issue the relevant documents of recognition and file them on a list of trusted ATSEs directly on the ATSE Platform here.
The expected time duration of the turnaround is approximately 60 days, but that’s if everything is in working order. The filing info will be shared via the Ministry of Science and Technology (MOST) and other ministries that are relevant to these filings.
Once the ATSE status has been approved, it is then valid for three years.
Supervision and Administration Follow-Up Details
The Ministry of Science and Technology requirements expects ATSEs to submit an “Annual Enterprise Statistic” and “Enterprise Information of the Previous Year” report via the ATSE Platform. And this is expected by the end of March on an annual basis. Then it will be reviewed by authorities on the provincial level.
Although the above-mentioned China tax policies pertaining to ATSEs are innovative, there are other tax policy privileges that help the tech sector to grow and develop. These come in the form of tax incentives for integrated and circuit software sectors that include refunds via VAT incremental credit balances and even for advanced manufacturing taxpayers and so forth.
These incentives and other similar ones help to reduce tax burdens on enterprises, especially if the enterprise is qualified. Enterprises are encouraged to study the application requirements to the fullest to understand each incentive to find one that suits their needs and situation.
Understanding the requirements for these China tax categories is important to understand where the enterprise fits. A good example would be that enterprises that don’t own local IP rights for technology types that pertain to the company’s core services or products might be better suited to HNTE status instead of ATSE.