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6. What are the specific policies that encourage the development of software and integrated circuit industries?
In order to promote the development of China's software and the integrated circuit (IC) industries and increase the creativeness and international competitiveness of the Chinese information industry, in June 2000 the Chinese government issued Policies on Encouraging the Development of Software Industry and Integrated Circuit industry. The document provides policy support to the software industry in the aspects of investment, financing, taxation, industrial technology, export, accreditation of software enterprises, and protection of intellectual property rights. For investments of certain scales into IC businesses, the policies offer preferential terms in taxation and other related aspects. The details are as follows.

The Software Industry

1). Investment and Financing Policies

a. Risk investment mechanism in software industry shall be established to encourage risk investment into software industry. Risk investment companies will be supported and set up by the state, and risk investment fund will be established.

b. In the Tenth Five-Year Plan (2001-2005), an appropriate part of the capital construction fund in the budget will be allocated for the infrastructure construction and industrialization projects of software industry. Software parks will be established under the auspices of the state in areas where there is concentration of scientific research forces, such as institutes of higher learning and scientific research institutions.

c. Efforts will be made to establish as soon as possible the pioneering board on the stock market. As long as they meet the requirement of listing on the pioneering board of the stock market, software enterprises shall be given preferential consideration, irrespective of the nature of their ownership.

d. In the evaluation of assets of software enterprises that have good market prospects and human resource advantages, the proportion of invisible assets to the net assets can be negotiated by investing parties.

e. Software enterprises are encouraged to go public and find financing on overseas markets. After verification, software enterprises qualified for being listed on overseas stock markets shall be allowed for getting listed overseas.

2). Taxation Policies

a. The state encourages the development and production of software products within the territory of the People's Republic of China. For general taxpayers selling software products developed and manufactured by themselves, the added-value tax will be collected, before 2010, in line with the tax rate of 17 percent set by law. Practically, except for the part of 3 percent, other part of the tax will be reimbursed after collection, for the enterprises to use on the research and development of software products and expansion of reproduction.

b. Software enterprises established within the territory of the People's Republic of China can enjoy, after verification, an income tax exemption for the first two years, beginning from the year of bringing in profits, and a 50-percent tax reduction for the following three years.

c. For key software enterprises within the framework of the state planning, their income taxes will be collected at the rate of 10 percent if they do not enjoy income tax exemptions that year.

d. Equipment imported by software enterprises for self use and supporting technology (including software), parts and spares imported with the equipment in accordance with the contract shall be exempted from tariffs and import-stage value-added tax.

e. The actual amount of salaries and training expenses for employees of software companies can be entered as cost.

3). Technology Policies for the Industry

a. The development of general software of importance and basic software is supported. The state technology fund shall mainly support the research and development of basic, strategic, forward-looking and substantial key software technology of generality, mainly including operational systems, large-scale database management systems, network platforms, development platforms, information security and embedded systems, large-scale applicable software systems and other basic and general software. The above-mentioned software research and development projects supported by the state should mainly rely on enterprises, and the project undertakers shall be selected through open bid.

b. Domestic enterprises, scientific research institutions and institutes of higher education are supported to cooperate with foreign enterprises in jointly establishing research and development centers.

4). Export Policies

a. Software export shall be integrated into the business scope of the Import and Export Bank of China and enjoy credit support with preferential interest. Moreover, the state export credit insurance institutions shall provide export credit insurance.

b. The Customs shall provide convenient services for the production and development of software. When research and development centers are established within the software parks supported by the state in order to design software for overseas customers, equipment to create the environment of virtual users shall be bonded.

c. The examination and approval formalities for the entry and departure of senior and middle-level managerial personnel and technicians of software enterprises shall be simplified, and the valid period can be extended.

d. Foreign exchange control measures in conformity with characteristics of software trade shall be adopted.

e. Software export enterprises are encouraged to pass the certification of GB/T19000-ISO9000 quality guarantee system and CMM (Capability Maturity Model). The certification expenses will be subsidized through the Central Foreign Trade Development Fund.

5). Accreditation System for Software Enterprises

a. Accreditation standards for software enterprises shall be formulated by the Ministry of Information Industry, the Ministry of Education, the Ministry of Science and Technology, the State Bureau of Taxation and other related departments.

b. Annual assessment system shall be carried out among software enterprises. Enterprises that fail to pass annual assessment will be deprived of their identities as software enterprises and can no longer enjoy related preferential policies.

c. The Ministry of Information Industry and the State Bureau of Quality and Technical Supervision shall be responsible for the formulation of national standards of software products.

6). Protection of Intellectual Property Rights

a. The registration of software copyrights is encouraged and key protection is given to registered software in accordance with the state laws.

b. No unit is allowed to use unauthorized software products in its computer system.

c. Crackdown on software smuggling and pirating shall be strengthened, and making, production and selling of pirated software shall be punished severely.

Integrated Circuits (IC) Industry

1). Foreign and domestic enterprises are encouraged to establish jointly invested or wholly foreign-invested IC production enterprises. For average tax payers selling IC products (including monocrystalline silicon chips) made by themselves, before 2010 value-added tax will be collected in line with the tax rate of 17 percent, as set by law. Practically, except for the part of 6 percent, other part of the tax will be reimbursed immediately after collection for the enterprises to use in research and development of new integrated circuits and reproduction expansion.

2). Preferential tax policies that encourage foreign investment in energy and communications industries will be adopted for IC manufacturers whose amount of investment exceeds 8 billion yuan or whose IC wire width is less than 0.25 m.

3). Self-use raw material and consumption goods for production imported by manufacturers whose amount of investment exceeds 8 billion yuan or whose IC wire width is less than 0.25 m shall be exempted from tariffs and import-stage value-added tax. The Customs shall provide clearance convenience for such enterprises.

4). Enterprises whose amount of investment exceeds 8 billion yuan or whose IC wire width is less than 0.25 m are permitted to deposit their after-tax profit intended for reinvestment within the territory of the People's Republic of China in a special account in the form of foreign currencies. These deposits are subject to the supervision of the foreign exchange administration department.

5). The minimum depreciation period for production equipment of IC manufacturers is three years.

6). IC technology and complete sets of production equipment imported by IC manufacturers and special IC equipment and apparatus imported as separate items shall be exempted, in accordance with relevant regulations, from import tariffs and import-stage value-added tax.

7). Chips of integrated circuits designed by domestic IC designing enterprises can be manufactured abroad if they cannot be manufactured domestically. After the processing contract (including specifications and amounts) is approved by the department in charge, tariffs shall be levied according to the interim preferential tax rate for their import.

8). The examination and ratification department in charge of IC projects is responsible for recognizing IC enterprises after soliciting opinions from the taxation department at the same level.

9). IC designs are regarded as software products and enjoy the protection of laws concerning intellectual property rights. The state encourages the evaluation and registration of IC designs.

10). IC designing is regarded as software industry and enjoys policies concerning software industry.

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