China TSMEs Technology-Based Small and Medium Sized Enterprises Tax Incentives

The term TSME is a tax term/category and an acronym for Technology-Based Small and Medium-Sized Enterprises. These generally fall under the category of SME (Small and Medium- Sized Enterprises). They are essentially technology-based enterprises that involve scientific and technology-based specialists working in R&D (Research and Development) activities that create innovative tech products or even services to obtain the IP rights for the tech.

To be deemed as a TSME, the losses the company made and have not made up in the five years before the year it became qualified as a TSME are allowed to be carried on for more years to be made up. The carry forward period should not exceed 10 years.

Essentially, the government in this scenario is treating the TSME as an HNTE (High and New Technology Enterprise) candidate to give support to help growth using other incentives such as massive tax deductions on the expenses for R&D.

TSMEs are now going to get even more support in regards to their R&D expenses. From 1 January 2022, any R&D expenses from a TSME that did not result in any intangible assets or are included in any current losses or profits in terms of actual deduction could be eligible to deduct an additional 100% of R&D expenses from their taxable income. If the said expenses from R&D did form intangible assets, they can now be amortized before Corporate Income Tax (CIT) at approximately 200% of the intangible assets’ actual cost.

This is a stark difference in comparison to the HNTE qualifications. There are special requirements for the TSME status concerning the number of employees it hires, the yearly amount in sales revenue, and even where total assets are involved. In regards to an HNTE, it needs to ensure that the core technology of the enterprise’s main products or even services is controlled by the state of ratio on the amount of income generated from their high-tech business and operations, and this is put against the total income that is higher than 60% over that same period. There are no requirements like these at all where TSME is concerned. The breakdown is that it’s much easier to get the status of TSME if they are a small business.

Qualifications and Criteria of a TSME

Here are the key requirements that a prospective TSME has to follow:

  • They must be registered in China but not in Taiwan, Macao, or Hong Kong.
  • You must have no more than 500 employees in total, or either an annual sales income or the amount in total assets that must not be above RMB 200 million (roughly 30.8 million in USD).
  • All its products and/or services are not prohibited, restricted, or a part of eliminated categories by the said State.
  • That the enterprise doesn’t have any major security risks or major quality accidents that could be a serious violation of environmental or scientific laws or research that happened in the previous year before applying. And that the company is not listed as an enterprise with abnormal operations or with dishonest activities that might violate laws.
  • The score for its comprehensive evaluation is not under 60 points in regard to the standard levels for TSMEs. The score for technical and scientific employees needs to be more than 0 points.

The indicators used in the evaluation of a TSME can be very specific and generally include categories such as R&D investment, technical and scientific employees, and could even come under scientific and technological achievement. The total maximum score the evaluation is based on is 100 points.

There are some enterprises that could be exempt from the evaluation testing and scoring requirements, and these are:

  • Any enterprise that currently has an HNTE certificate that is yet to expire.
  • All enterprises that have won awards at the state-level for science and technology, but must be ranked in the top-3 within the past 5 years.
  • If the enterprise is at least a provincial or ministerial level that has a recognized R&D body.
  • If the enterprise has worked hard to operate at international, national, or industry standards over the past 5 years.

TSME Application Process Information

TheThe enterprise could carry out a self-evaluation that works in tandem with the Measures for Evaluating TSME. This is done voluntarily, and to start the application process, you need to fill in the information that you can find on the “National Information Service Platform” for TSMEs here. Fill out the info to get started.

The provincial hall science and technology administrative departments can help you to organize and coordinate all the relevant sectors to complete and confirm the content and info in the TSMEs Information Form that needs to be filled in by the enterprise in under 5 working days. If the enterprise correctly fills in the info and meets the conditions, it will be publicized on the Service Platform for just 10 working days. As long as there are no objections, the enterprise will then be listed on the National Information Database for TSMEs by a registration number that is then valid from the publicity up until 31 December in the same year they applied.

Follow-Up Supervision and ongoing Administration Details

Enterprises that have been listed on the TSME Database need to update their info via the TSME Service Platform every year by the end of March. After which, the enterprise gets another independent evaluation to see if they still meet the requirements for being a TSME and to go through the application process once again.

If an enterprise on the TSME Database changes its name or dramatically changes things related to the process criteria, it will need to make those changes in the platform in under three months.

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