Chip companies enjoy tax incentives

The integrated circuit (chip) industry is one of the pain points in China's development. Currently, the largest import of goods into China every year is not oil, natural gas, or food, but chips. The annual import volume is over 200 billion US dollars, equivalent to over 1 trillion yuan. Not having one's own 'Chinese chip' is also a major national security threat.

According to the "Market Demand Forecast and Investment Strategy Planning Analysis Report for the Integrated Circuit Industry" released by the Forward Industry Research Institute, before 2008, China's integrated circuit equipment relied mainly on imports. In 2009, the market size of China's integrated circuit equipment was only 969 million US dollars, with import and self-made scales of 900 million US dollars and 69 million US dollars respectively, and the proportion of equipment self-made was 7% (CISA data, the same applies below). Since 2010, China has accelerated the pace of equipment imports. In 2016, the scale of equipment imports reached 3.6 billion US dollars, four times that of 2009. The equipment self-sufficiency rate has decreased to 3%, indicating a severe dependence on imports.
Scale, growth rate, and proportion of self-made integrated circuit equipment market in China from 2009 to 2018
In order to improve the import situation of integrated circuit equipment, the country has established a major science and technology special project - the Large scale Integrated Circuit Manufacturing Equipment and Complete Process Technology Project (referred to as the 02 special project). Since 2011, China's serious dependence on imported integrated circuits has gradually improved, and 15 types of 12 inch main equipment have been verified through large-scale production. In 2012, it reached 12% for the first time and gradually increased to 16% by 2015. Thanks to the 02 Special Project and other domestic integrated circuit development funds, the size of the domestic integrated circuit equipment market surged by 283% in 2010, reaching 3.707 billion yuan.
Affected by the overall economic development, there was a slight decline in 2011 and 2012, but growth resumed after 2013. The compound annual growth rate between 2013 and 2017 was as high as 22.11%, with the increase mainly coming from thin film manufacturing equipment, ion implantation equipment, and packaging equipment.
Integrated circuit chips are closely related to information security, economic security, and even national defense security, and are of paramount importance in the country's development strategy. The core technology in this area cannot be controlled by others, so it is given key support for development from the national strategic level. The Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission, and the Ministry of Industry and Information Technology recently jointly issued the "Notice on Enterprise Income Tax Policies for Integrated Circuit Production Enterprises", which stipulates the tax preferential policies that integrated circuit production enterprises or projects can enjoy, encourages enterprises to continue to strengthen their research and development activities, and continuously improve their research and development capabilities. The notice will be implemented from January 1st, 2018. The support of tax policies helps to increase the localization rate of domestic integrated circuits.
The notice also proposes that after January 1, 2018, integrated circuit production enterprises or projects that invest in newly established integrated circuits with a line width less than 65 nanometers or an investment amount exceeding 15 billion yuan, and have an operating period of more than 15 years, will be exempt from corporate income tax from the first to the fifth year, and will be subject to a 50% reduction in corporate income tax at the statutory tax rate of 25% from the sixth to the tenth year, and will enjoy the benefits until the expiration of the period.
The notice states that integrated circuit production enterprises established before December 31, 2017 but not profitable with a line width less than 0.25 microns or an investment amount exceeding 8 billion yuan, and with an operating period of more than 15 years, will be exempt from enterprise income tax from the first to the fifth year of the profitable year, and will be subject to a 50% reduction in enterprise income tax at the statutory tax rate of 25% from the sixth to the tenth year, and will enjoy it until the expiration of the period.
Integrated circuit production enterprises with a line width of less than 0.8 microns (inclusive) that were established before December 31, 2017 but did not generate profits shall be exempt from enterprise income tax from the first to second profitable years, and shall be subject to a 50% reduction in enterprise income tax at the statutory tax rate of 25% from the third to fifth year, and shall enjoy the benefits until the expiration of the period.