On May 17, 2019, the Ministry of Finance and the State Administration of Taxation issued the Announcement on Enterprise Income Tax Policies for Integrated Circuit Design and Software Industries (the “Announcement”). The State Council had previously issued the Circular on Specific Policies for Further Encouragement to the Development of the Software and Integrated Circuit Industries (Kuo Fa  No. 4) to promote the development of those industries through preferential enterprise income tax policies. At that time, it was specifically indicated that the preferential treatment period would commence in the profitable year prior to December 31, 2017. Given the current trade environment, the Announcement serves to clarify the nation’s policy direction and is expected to clear up market concerns and boost market confidence.
According to the Circular, the preferential treatment period for eligible integrated circuit design enterprises and software enterprises shall begin in the profitable year before December 31, 2018, with no enterprise income tax assessed for the first and second years. During the third through the fifth year, the enterprise income tax will be halved from the 25% statutory tax rate until the end of the preferential treatment period (which is known as “two [years of] exemptions and three [years of] reductions” policy in the industries). The above-mentioned “eligible enterprise” refers to an enterprise that meets the conditions under the Circular of the Ministry of Finance and the State Administration of Taxation on the Enterprise Income Tax Policy for Encouragement in the Development of the Software and Integrated Circuit Industries (Cai Shui  No. 27) and the Circular of the Ministry of Finance, the State Administration of Taxation, the National Development and Reform Commission and the Ministry of Industry and Information Technology on the Preferential Enterprise Income Tax Policy for the Software and Integrated Circuit Industries (Cai Shui  No. 49).