China introduces 'super-input VAT credit' policy for integrated circuit enterprises

• Taxpayers in integrated circuit (IC) enterprises may be eligible for a new 15% "super-input" value added tax (VAT) credit in China.
  
  
• This Alert highlights the credit, which is available for taxpayers engaging in certain qualifying IC-related activities from 2023–2027.

The Ministry of Finance (MOF) and State Taxation Administration (STA) for The People's Republic of China recently introduced the "super-input VAT credit" policy for integrated circuit (IC) enterprises through Caishui [2023] No. 17 (Circular 17). The policy aims to support the development of the IC industry. From 1 January 2023 to 31 December 2027, general value-added tax (VAT) taxpayers engaging in IC design, manufacturing, equipment, materials, packaging and testing would be eligible for an extra 15% "super-input VAT credit." This allows qualified IC enterprises to credit their eligible input VAT at a rate of 115%.

The relevant criteria, administration and list of qualified IC enterprises eligible for the credit will be further stipulated by the Ministry of Industry and Information Technology together with the MOF, STA, National Development and Reform Commission, and other relevant authorities. The calculation of the super-input VAT credit for IC enterprises is determined by deducting the input VAT for external purchases of chips from the deductible input VAT for the current period and multiplying the result by 15%.

It is important to note that, aside from the super-input VAT credit policy introduced in Circular 17, there is a prevailing policy that grants an additional 5% or 10% super-input VAT credit for taxpayers engaging in certain services, allowing eligible input VAT to be credited at rates of 105% or 110%. This prevailing policy is in effect from 1 January 2023 to 31 December 2023. IC enterprises can only choose to apply one type of super-input VAT credit policy, even if they are eligible for multiple policies.
 

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Services Limited, Hong Kong
 

• Jane Hui
  
  
• Becky Lai
   

Ernst & Young (China) Advisory Limited
 

• Vickie Tan, Shanghai
  
  
• Walter Tong, Shanghai
  
  
• Patricia Xia, Shanghai
  
  
• Andrew Choy, Beijing
  
  
• Ho Sing Mak, Shenzhen
   

Ernst & Young LLP (United States), China Tax Desk
 

• Min Fei, New York
  
  
• Ryan Lu, New York
  
  
• Alvin Lin, New York
  
  
• Lucy Wang, Chicago
  
  
• Kenny Guo, Chicago
  
  
• Diana Wu, San Jose
   

Ernst & Young LLP (United Kingdom), China Tax Desk, London
 

• Cyril Lau
  
  
• Elsie Chen
   

Ernst & Young LLP (United States), Asia Pacific Business Group, New York
 

• Gagan Malik
  
  
• Dhara Sampat
   

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
 

• Pongpat Kitsanayothin

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.