Fang Wei Lin, Elva Chuang, Nadine Cheng (Mainland China)
Internet-related industries have been development focuses of China in recent years. This year (2018), the Taiwan Affairs Office promulgated the Specific Measures for Promoting Cross-Strait Economic and Cultural Exchanges and Cooperation (hereinafter, the “31 Policy Measures to Benefit Taiwan”), which allow Taiwanese operators in specific fields which are developing their business in China to enjoy beneficial treatments and other policy support which are at least not less favorable to those enjoyed by local people in China. This essay seeks to analyze the potential impact of the 31 Policy Measures to Benefit Taiwan after they are promulgated, focusing on “Internet-related industries in Taiwan.”
I.Restrictions and deregulation on foreign investment in Internet-related industries
(1)Beginning with January 1, 2018, foreign investors may invest in “stores of Internet access services”[1] in pilot free trade zones in various provinces. The so-called “stores of Internet access services” refer to business-oriented sites such as Internet cafes and computer lounges that provide Internet access services to the public through devices such as computers. It should be noted, however, that Internet news information services, Internet map compiling and publishing activities, online publishing services, network audiovisual program services, Internet cultural operations (except music), and Internet public information services are still prohibited.[2] Even for a project which is not prohibited, there is still a negative list for investment restrictions in mainland China. For business in the negative list for investment restrictions, businesses in Taiwan can only work with domestic enterprises in China on relevant business. For example, if the cooperation of an Internet news information service organization with a foreign investor involves Internet news information services or business, the cooperation is subject to the restriction that application shall be filed with the China government for security assessment first.
(2)In addition, the China government may have other rules and regulations which should be complied with for establishments in various fields of the Internet industry, depending on the fields. For example, an operator of Internet online gaming in mainland China is still required to obtain a “license for Internet cultural operation” and a license for “Internet publishing services” pursuant to the Interim Provisions on the Administration of Internet Publishing, and the Interim Provisions on the Administration of Internet Culture.
(3)In recent years, China has eased the control of “Internet drug (third party) trading service enterprises”. Operation of an Internet drug (third party) trading service enterprise no longer requires a special approval[3] from the China Food and Drug Administration. Instead, the control approach has been replaced by enhanced ex post supervision. As a result, the establishment costs of such enterprises have been greatly reduced. As the China government is actively promoting the development of the Internet industry, whether there will be more deregulated policies for the regulation of the Internet industry merits continuous follow-up by Internet operators.
II.Preferential treatments to relevant Internet operators in Taiwan in developing their business in mainland China after the release of the 31 Policy Measures to Benefit Taiwan
(1)Taiwan-funded Internet enterprises that meet the Administrative Measures for the Qualification of High and New Technology Enterprises are eligible under such measures for the policy of preferential taxes such as the preferential tax rate of 15% for enterprise income taxes, weighted deduction of research and development expenses, and the full refund of value-added taxes for equipment made in mainland China and procured by a research and development center set up in mainland China.
1.To encourage innovation and research and development and to achieve national industry transformation, China formulated the Administrative Measures for the Qualification of High and New Technology Enterprises in 2016 to grant relevant tax incentives to foreign-funded (including Taiwan-funded) and domestic-funded enterprises which are registered in the territories of China (not including Hong Kong, Macao, and Taiwan) and meet certain conditions. In addition to the Administrative Measures for the Qualification of High and New Technology Enterprises, various local governments have also formulated relevant qualification rules for high and new technology enterprises. For example, the Shenzhen Municipality prescribed the 2018 Application for Preferential Policies and the Timing, Conditions and Benefits of the Application and the Certification for the Qualification of High and New Technology Enterprises in Shenzhen, and qualified enterprises are eligible for all kinds of incentives repeatedly under various measures.
2.Pursuant to Article 2 of the 31 Policy Measures to Benefit Taiwan released at the end of February, Taiwan-funded enterprises qualified as “high and new technology enterprises” are also eligible for enterprise income taxes levied at a preferential rate of 15%, weighted deduction of research and development expenses, and full refund of value-added taxes for the procurement of equipment from mainland China by research and development centers set up in mainland China. In fact, this is merely a reiteration of relevant incentives applicable to Taiwan-funded enterprises under the above measures. Therefore, for specific qualification standards or specific incentives available to Taiwan-funded enterprises which apply to be qualified as “high and new technology enterprises”, the Administrative Measures for the Qualification of High and New Technology Enterprises and the 2018 National Qualification of High and New Technology Enterprises – Application Requirements for High and New Technology Enterprises and Tax Incentive Policy, Benefits and Processes and relevant provisions released by local governments should be referenced.
3.Under the Administrative Measures for the Qualification of High and New Technology Enterprises, an enterprise applying for the qualification of a “high and new technology enterprise” should fall within the scope of the High and New Technology Fields under the Key Support of the State. According to China’s latest 2016 Catalogue of High and New Technology Fields under the Key Support of the State, Internet-related industries covering “electronic information” include e-commerce related to cloud computing, logistics management software, massive storage and processing technologies for volume Internet of Things information, distributed and data management software, mobile Internet application software, big data acquisition, storage, management, analysis and application software, artificial intelligence technology, etc. (for details about the supported technical categories, please refer to the 2016 Catalogue of High and New Technology Fields under the Key Support of the State).
4.If a Taiwan-funded Internet enterprise has been set up in the territories of China for at least one year with the core technologies of its major products (services) falling within the above-mentioned scope and complying with the following major conditions, such enterprise may apply for a “high and new technology enterprise” certificate and become eligible for relevant incentives under the measures if such certificate is obtained: (Please refer to Article 11 of the Administrative Measures for the Qualification of High and New Technology Enterprises for details about the criteria.)
(i)The intellectual property right to the core technologies is owned by the enterprise.
(ii)The number of the enterprise’s employees engaging in research and development account for no less than 10% of the total workforce.
(iii)The total research and development expense incurred by the enterprise for the last three fiscal years accounts for at least a specific percentage (2~5%, depending on the scale of the sales revenue).
(iv)The revenue from high and new-tech products (services) in the past year accounts for no less than 60% of the enterprise’s total revenue for the same period.
(v)The enterprise’s innovation capabilities as evaluated should meet corresponding requirements.
(vi)The enterprise has not had any major safety or quality incident or serious environmental violation one year prior to the qualification application.
5.If an enterprise is successfully qualified as a “high and new technology enterprise”, it is then eligible for a preferential rate of 15% for its income taxes, housing subsidies for high-ranking talents of the enterprise, weighted deduction of research and development expenses, corresponding local subsidies for the qualification of “high and new technology enterprises”, and incentives such as prioritized approval of office and industrial land use. This is a favorable message for Taiwanese enterprises interested in research and development investment in mainland China. (For details about the incentives, please refer to the 2018 National Qualification of High and New Technology Enterprises – Application Requirements for High and New Technology Enterprises and Tax Incentive Policy, Benefits and Processes; and for application for incentives in Shenzhen, please refer to the 2018 Application for Preferential Policies and the Timing, Conditions and Benefits of the Application and the Certification for the Qualification of High and New Technology Enterprises in Shenzhen.)
(2)”Internet plus the manufacturing sector” has been a key development item in the “Made in China 2025” action program. Coupled with China’s release of the 31 Policy Measures to Benefit Taiwan this year, Taiwan-funded enterprises interested in investing in Internet advanced manufacturing and smart manufacturing in China and setting up regional headquarters and research and development centers there may participate in the “Made in China 2025” action program[4] and enjoy incentives under relevant support policies for taxes and investment.
1.China released her “Made in China 2025” action program to deepen the application of the Internet to the manufacturing field as one of the development objectives with key directions covering information and communications equipment, operating systems and industrial software, core information equipment for smart manufacturing, etc.[5]After the “Made in China 2025” action program was launched, the State Council issued guiding opinions in 2017, stating that China will provide generous fiscal support to the Internet-related industries with the following incentives.[6] Local governments are conditionally encouraged to support the development of local industrial Internet clusters through the setup of a dedicated industrial Internet fund or risk compensation fund and to carry out relevant preferential tax policies, such as accelerated depreciation of fixed assets, weighted deduction of enterprise research and development expenses, preferential income taxes for enterprises in the software and integrated circuit industries, and preferential taxes for small and micro-sized enterprises.
2.After the release of the 31 Policy Measures to Benefit, Taiwan-funded enterprises involved in Internet advanced manufacturing will be eligible for the “Made in China 2025” action program and may enjoy the above tax incentives equally with operators in mainland China. (Please refer to Article 1 of the 31 Policy Measures to Benefit Taiwan.)
III.Possibilities and outlooks for the development of Taiwan’s Internet-related operators in mainland China after the release of the 31 Policy Measures to Benefit Taiwan
The prosperous development of the Internet has torn down past geographic and market barriers of products and presented trading opportunities as long as customers can be reached. In the future, operators will be facing more unlimited international competition. In recent years, China has been actively developing Internet infrastructure, accelerated the development and transformation of broadband network infrastructure in mainland China, expanded the coverage of networks, and developed a comprehensive internet ecosystem. Such environment is undoubtedly a major incentive for Internet operators in Taiwan. Buttressed by the 31 Policy Measures to Benefit Taiwan released this year, Taiwan-funded enterprises investing in mainland China may enjoy the same treatments as Chinese enterprises. It is foreseeable that Internet operators in Taiwan which are interested in investing in mainland China will enjoy incentives to a certain extent with respect to taxes and research and development expenses. In addition, with the support of the China government, more and more Internet-related alliances (such as the Internet Industry Alliance)[7] have been established in various parts of China. Taiwanese operators seeking development opportunities in mainland China can also seize the opportunities and obtain more resources.
[1] Decision of the State Council on Temporarily Adjusting the Provisions of Relevant Administrative Regulations, Documents of the State Council, and Departmental Rules Approved by the State Council in Pilot Free Trade Zones, Guo Fa [2017] No. 57, Source: http://www.gov.cn/zhengce/content/2018-01/09/content_5254764.htm, last browsed on May 18, 2018
[2] Circular of the General Office of the State Council on Issuing the Special Administrative Measures (Negative List) for Foreign Investment Access to Pilot Free Trade Zones (2017 Version), Guo Ban Fa [2017] No. 51, Source:http://www.gov.cn/zhengce/content/2017-06/16/content_5202973.htm, last browsed on May 18, 2018.
[3] Decision of the State Council on Cancelling a Batch of Items Subject to Administrative Examination and Approval, Guo Fa [2017] No. 46, Source: http://www.gov.cn/zhengce/content/2017-09/29/content_5228556.htm, last browsed on May 10,2018.
[4] Circular of the State Council on Issuing Made in China 2025, Guo Fa [2015], No. 28, Source: http://www.gov.cn/zhengce/content/2015-05/19/content_9784.htm, last browsed on May 10, 2018
[5] The Planning Department of the Mainland China Affairs, An Overview of “Made in China 2025” Issued in Mainland China, http://ws.mac.gov.tw/001/Upload/OldFile/public/Attachment/581811412234.pdf, last browsed on May 10, 2018
[6] The Guiding Opinions of the State Council on Deepening “Internet Plus Advanced Manufacturing Sector” for the Development of Industrial Internet, Promulgation Date: November 27, 2017, Source: http://www.gov.cn/zhengce/content/2017-11/27/content_5242582.htm, last browsed on May 10, 2018
[7] Chun-hui Hsiao and Fang-miao Liu (Economic Daily News Network), Made in China 2025…, Hong Hai Will Be the Big Winner, Business Today, April 26, 2018, Source: https://www.businesstoday.com.tw/article/category/80392/post/201804260030/, last browsed on May 10, 2018