China exempts chip companies from corporation tax

China has announced that it will offer semiconductor companies operating within the region tax breaks, allowing companies to avoid corporation tax for five years and pay at half rate for another five.

Announced by the Chinese Finance Ministry less than two weeks after US President Donald Trump unveiled hefty tariffs on Chinese imports, the new tax rules are designed to provide Chinese-owned and -operated semiconductor companies with financial advantages over their foreign rivals. Key to this is an exemption from corporation tax, currently running at 25 percent: All companies accepted under the programme will pay no corporation tax at all for five years from January 1st, then pay at a reduced rate of 12.5 percent for the next five years.

The hefty tax break follows similar measures which have been introduced in the country since 2012 as part of the 'Made in China 2025' programme, an initiative launched in 2015 by Chinese Premier Li Keqiang and which attempts to launch a 'fourth industrial revolution' in the nation by encouraging native high-technology developments while reducing reliance on foreign technology. Part of this is the so-called 'Big Fund', a near-£107 billion government fund put aside to subsidise semiconductor fabs and other native enterprises.

To get a tax cut, however, a company must have invested at least £1.7 billion in local production lines and be operating on a 65nm or smaller process node; companies operating between 130nm and 65nm will be exempted from corporation tax for two years, while those above 130nm will receive no benefits.