China actively uses tax incentives as a tool to attract investment and develop priority sectors of the economy. Although the standard Corporate Income Tax (CIT) rate is 25%, many companies can significantly reduce their tax burden by meeting the criteria established by law.
Tax incentives are available not only to Chinese enterprises but also to foreign-invested companies, including WFOEs (Wholly Foreign-Owned Enterprises), provided they meet the requirements of a specific support program.
Tax incentives are available not only to Chinese enterprises but also to foreign-invested companies, including WFOEs (Wholly Foreign-Owned Enterprises), provided they meet the requirements of a specific support program.
Overview of Tax Incentives in China
The table below summarizes the main tax support programs available to businesses in China.
Small Business Incentive (Small Low-Profit Enterprise)
One of the most widely used programs is the Small Low-Profit Enterprise (SLPE) regime, designed to support small and medium-sized businesses.
To qualify, a company must simultaneously meet the following criteria:
When these conditions are met, corporate income tax is calculated under a preferential formula, resulting in an effective rate of approximately 5% instead of the standard 25%.
This regime is commonly used by small trading companies, importers, exporters, consulting agencies, IT firms, and subsidiaries of foreign groups in the early stages of business development.
To qualify, a company must simultaneously meet the following criteria:
- annual taxable profit — no more than CNY 3 million;
- average number of employees — no more than 300;
- total asset value — no more than CNY 50 million.
When these conditions are met, corporate income tax is calculated under a preferential formula, resulting in an effective rate of approximately 5% instead of the standard 25%.
This regime is commonly used by small trading companies, importers, exporters, consulting agencies, IT firms, and subsidiaries of foreign groups in the early stages of business development.
High and New Technology Enterprise Status (HNTE)
One of the most significant tax incentives available in China is the High and New Technology Enterprise (HNTE) status. Once granted, the corporate income tax rate is reduced from 25% to 15%.
Companies that may qualify include those that:
HNTE status is most commonly obtained by companies working in artificial intelligence, software development, microelectronics, semiconductor manufacturing, biotechnology, medical technology, new materials, robotics, and environmental solutions.
In addition to the reduced tax rate, such enterprises gain advantages when participating in government support programs, subsidies, and grants.
Companies that may qualify include those that:
- are registered in mainland China;
- operate in one or more priority high-technology sectors;
- own intellectual property (patents, software copyrights, etc.);
- invest in research and development;
- derive at least 60% of revenue from high-technology products or services.
HNTE status is most commonly obtained by companies working in artificial intelligence, software development, microelectronics, semiconductor manufacturing, biotechnology, medical technology, new materials, robotics, and environmental solutions.
In addition to the reduced tax rate, such enterprises gain advantages when participating in government support programs, subsidies, and grants.
R&D Super Deduction
Companies investing in research and development of new technologies can further reduce their tax burden through the R&D Super Deduction mechanism.
The deduction applies to expenses related to:
For most enterprises, R&D expenditures are deducted at a rate of 200% of actual costs. For example, if a company invested CNY 1 million in R&D, it can reduce its taxable income as if it had spent CNY 2 million.
This measure is especially popular among IT companies, engineering centers, equipment manufacturers, and enterprises engaged in innovation.
The deduction applies to expenses related to:
- software development;
- creation of new technologies;
- design of new products;
- testing and trials;
- development of new manufacturing processes;
- production of prototypes.
For most enterprises, R&D expenditures are deducted at a rate of 200% of actual costs. For example, if a company invested CNY 1 million in R&D, it can reduce its taxable income as if it had spent CNY 2 million.
This measure is especially popular among IT companies, engineering centers, equipment manufacturers, and enterprises engaged in innovation.
Special Economic Zone Incentives
Additional tax advantages are available to companies registered in China's Special Economic Zones (SEZs).
In the Qianhai zone (Shenzhen), the corporate tax rate is reduced to 15% for enterprises operating in international trade, digital economy, financial technology (FinTech), modern logistics, cross-border e-commerce, software development, and legal and professional services.
In the Lingang area (Shanghai), the same 15% rate applies to companies engaged in artificial intelligence, integrated circuit manufacturing, biomedicine, intelligent manufacturing, aerospace, and R&D activities.
In the Hainan Free Trade Port, the preferential 15% rate is available to enterprises whose primary income comes from state-encouraged sectors: tourism, modern services, healthcare, education, digital economy, high-tech manufacturing, marine industries, and environmental projects.
Simply registering a company in one of these zones is not sufficient — the company's primary business activity must correspond to the government-approved list of priority industries for that zone.
In the Qianhai zone (Shenzhen), the corporate tax rate is reduced to 15% for enterprises operating in international trade, digital economy, financial technology (FinTech), modern logistics, cross-border e-commerce, software development, and legal and professional services.
In the Lingang area (Shanghai), the same 15% rate applies to companies engaged in artificial intelligence, integrated circuit manufacturing, biomedicine, intelligent manufacturing, aerospace, and R&D activities.
In the Hainan Free Trade Port, the preferential 15% rate is available to enterprises whose primary income comes from state-encouraged sectors: tourism, modern services, healthcare, education, digital economy, high-tech manufacturing, marine industries, and environmental projects.
Simply registering a company in one of these zones is not sufficient — the company's primary business activity must correspond to the government-approved list of priority industries for that zone.
Export VAT Refund
For manufacturers and export-oriented companies, the Export VAT Refund mechanism is one of the most beneficial forms of government support.
When selling goods on the domestic market, companies pay VAT at a rate of 13% or 9% depending on the product category. However, when goods are exported, a 0% VAT rate applies, which entitles the company to reclaim input VAT previously paid when purchasing raw materials, components, and equipment.
The refund amount is determined by the product's HS Code. The most common refund rates are shown in the table below.
When selling goods on the domestic market, companies pay VAT at a rate of 13% or 9% depending on the product category. However, when goods are exported, a 0% VAT rate applies, which entitles the company to reclaim input VAT previously paid when purchasing raw materials, components, and equipment.
The refund amount is determined by the product's HS Code. The most common refund rates are shown in the table below.
To use the Export VAT Refund mechanism, a company must hold General VAT Taxpayer status, complete customs export procedures, obtain an export declaration, and receive VAT Fapiao invoices confirming input VAT paid to suppliers.
For export-oriented businesses, this measure can significantly improve profitability. For example, when exporting industrial equipment worth CNY 10 million, a company can reclaim up to CNY 1.3 million in previously paid VAT, substantially reducing production costs and improving competitiveness on the international market.
For export-oriented businesses, this measure can significantly improve profitability. For example, when exporting industrial equipment worth CNY 10 million, a company can reclaim up to CNY 1.3 million in previously paid VAT, substantially reducing production costs and improving competitiveness on the international market.
Choosing the Most Advantageous Tax Regime
Most tax incentives in China are granted only when specific conditions are met. Therefore, before registering a company, it is important to assess the future business structure, type of activity, projected revenue, region of registration, and the possibility of applying special tax regimes.
An incorrectly chosen organizational structure or place of registration may result in the company being unable to access available incentives and paying taxes at standard rates.
An incorrectly chosen organizational structure or place of registration may result in the company being unable to access available incentives and paying taxes at standard rates.
Frequently Asked Questions
Can a foreign company (WFOE) access tax incentives in China?
Yes. Most tax incentives in China are available not only to local enterprises but also to foreign-invested companies, including WFOEs, provided they meet the established criteria. For example, a WFOE may qualify for HNTE status, the SLPE regime, or the R&D Super Deduction if it meets the requirements of the specific program.
What is the minimum effective corporate income tax rate in China?
When several incentives are applied simultaneously, the effective rate can be significantly lower than the standard 25%. For companies under the SLPE regime, it is approximately 5%; for enterprises with HNTE status or located in SEZs — 15%. The specific outcome depends on the business structure, type of activity, and region of registration.
What does a company need to obtain HNTE status?
The company must be registered in mainland China, operate in a priority high-technology sector, own intellectual property, invest in R&D, and derive at least 60% of its revenue from high-technology products or services. The status is granted for three years and can be renewed.
Is registering in an SEZ enough to get the 15% preferential rate?
No. Registration alone is not sufficient. The company's primary business activity must correspond to the government-approved list of priority industries for that specific zone. For example, in Qianhai the preferential rate applies to FinTech, logistics, and international trade, while in Lingang it applies to semiconductor manufacturing, biomedicine, and AI.
How does the Export VAT Refund work and who is eligible?
When goods are exported from China, a 0% VAT rate applies, entitling the company to reclaim input VAT previously paid on raw materials and components. The refund rate depends on the product's HS Code and ranges from 9% to 13% for most industrial goods. To receive the refund, the company must hold General VAT Taxpayer status and properly complete all export documentation.
Can multiple tax incentives be applied at the same time?
In some cases, yes. For example, a company with HNTE status, registered in an SEZ and investing in R&D, may simultaneously apply the reduced 15% CIT rate and the enhanced R&D Super Deduction. However, the compatibility of incentives depends on the specific programs and requires prior analysis.
Yes. Most tax incentives in China are available not only to local enterprises but also to foreign-invested companies, including WFOEs, provided they meet the established criteria. For example, a WFOE may qualify for HNTE status, the SLPE regime, or the R&D Super Deduction if it meets the requirements of the specific program.
What is the minimum effective corporate income tax rate in China?
When several incentives are applied simultaneously, the effective rate can be significantly lower than the standard 25%. For companies under the SLPE regime, it is approximately 5%; for enterprises with HNTE status or located in SEZs — 15%. The specific outcome depends on the business structure, type of activity, and region of registration.
What does a company need to obtain HNTE status?
The company must be registered in mainland China, operate in a priority high-technology sector, own intellectual property, invest in R&D, and derive at least 60% of its revenue from high-technology products or services. The status is granted for three years and can be renewed.
Is registering in an SEZ enough to get the 15% preferential rate?
No. Registration alone is not sufficient. The company's primary business activity must correspond to the government-approved list of priority industries for that specific zone. For example, in Qianhai the preferential rate applies to FinTech, logistics, and international trade, while in Lingang it applies to semiconductor manufacturing, biomedicine, and AI.
How does the Export VAT Refund work and who is eligible?
When goods are exported from China, a 0% VAT rate applies, entitling the company to reclaim input VAT previously paid on raw materials and components. The refund rate depends on the product's HS Code and ranges from 9% to 13% for most industrial goods. To receive the refund, the company must hold General VAT Taxpayer status and properly complete all export documentation.
Can multiple tax incentives be applied at the same time?
In some cases, yes. For example, a company with HNTE status, registered in an SEZ and investing in R&D, may simultaneously apply the reduced 15% CIT rate and the enhanced R&D Super Deduction. However, the compatibility of incentives depends on the specific programs and requires prior analysis.
