China To Introduce New Tax Breaks For Chip Makers

by Mary Swire, Tax-News.com, Hong Kong

08 April 2005

The Chinese government is reportedly ready to introduce new tax breaks for domestic semiconductor manufacturers in a concession to firms affected by the scrapping of a VAT rebate, dismantled at the behest of the World Trade Organisation.

According to a report by Bloomberg News, the Chinese authorities will subsidise up to half of the cost of chip manufactures’ research and development costs and exempt some firms from paying income tax for a period of up to ten years.

"The research funding and income tax breaks are a form of compensation to help chipmakers after the cancellation of the VAT rebates," Li Ke, a director of the information department at the China Semiconductor Industry Association told Bloomberg in an interview.

Li confirmed that the R&D measures have already been announced by the Chinese government, and added that the new income tax breaks are set to be announced in the near future.

The new tax breaks follow close in the wake of China’s abolition of the VAT rebates, which the United States had argued were in breach of world trade rules.

Under the disputed regime, China imposed a VAT rate of 17% on sales of all imported and domestically produced semiconductors, but rebated the amount of the VAT burden in excess of 3% for semiconductors produced in China.

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