A shot in the arm for China’s software and integrated circuit industries

The State Council recently issued a series of policies (Policies) aiming at boosting the growth of China’s software integrated circuit industries and sharpening their competitive edge, in relation to financing and foreign investment, taxation, internal incentives and intellectual property (IP) protection.

Some of the major points of the Policies can be summarized as follows :

Financing

• The State encourages and supports the establishment of venture capital funds for the software industry, including providing seed capital;
• The State facilitates the listing of software enterprises on both the domestic and overseas stock markets.

Foreign Investment

• The establishment of Sino-foreign joint ventures and wholly- foreign-owned integrated circuit enterprises is encouraged;
• Integrated circuit enterprises meeting certain conditions are given extra favourable treatment, in terms of taxation, customs procedures, and foreign exchange control;

Internal Incentives

• Software enterprises are allowed the freedom to determine the level of employee salaries within the PRC legal framework and to put in place incentive schemes.

Taxation

• For software enterprises selling self-developed software, value added tax (VAT) paid beyond 3 per cent (or 6 per cent for integrated circuit enterprises) will be refunded for reinvestment in research & development and enlargement of reproduction;
• Imports of equipment for an enterprise’s own use are exempted from customs duties and VAT.

IP Protection

• The copyright administration authority under the State Council aims to standardize and strengthen software copyright registration and place more effort on the protection of copyrights of registered software;
• The general crack down on software smuggling and piracy will be strengthened; starting from the second half of this year, the Ministry of Public Security, MII, State Administration of Industry and Commerce, State Administration of Intellectual Property, State Administration of Copyright and SAT will start to combine efforts to combat piracy on a regular basis.

These policies are generally viewed by the domestic software and integrate circuit industries as necessary to get them prepared for the expected fierce international competition after China’s WTO entry. For foreign investors, however, it might be seen as a good opportunity to start a software or integrated circuit business in China.

It should be noted that the Policies are not intended to be directly operable, as they are very broadly-phrased. Specific implementing rules and regulations are needed to carry them out.

For further information please contact Aili Zhao on + 8610 5490 0389 or on [email protected].