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China Extends VAT Exemption for Domestic R&D Equipment

China's State Administration of Taxation has published Announcement No. 91 of 2019, which was jointly issued with the Ministry of Finance and provides for the extension of the VAT exemption (refund) on domestically-produced research and development (R&D) equipment purchased by R&D institutions, including approved domestically-funded R&D institutions and foreign-funded R&D centers, subject to certain conditions.

For foreign-funded R&D centers, specific conditions for the VAT exemption depend on when the R&D center was established:

  • For R&D centers established on or before 30 September 2009, the following conditions apply:
    • Total investment of at least USD 5 million as an independent legal person or total R&D investment of at least USD 5 million if not an independent legal person (a company's internal department or branch), and annual R&D expenses of at least CNY 10 million;
    • At least 90 full-time research and development personnel; and
    • Total equipment purchases with an original value of at least CNY 10 million since the establishment of the center.
  • For R&D centers established after 30 September 2009, the following conditions apply:
    • Total investment of at least USD 8 million as an independent legal person or total R&D investment of at least USD 8 million if not an independent legal person (a company's internal department or branch), with no annual expense condition;
    • At least 150 full-time research and development personnel; and
    • Total equipment purchases with an original value of at least CNY 20 million since the establishment of the center.

Before the exemption can apply, the R&D center must be examined and approved by the competent authority as to whether the conditions are met. R&D centers that have been approved within the prior two years may continue to enjoy the exemption for two years.

Announcement No. 91 applies from 1 January 2019 to 31 December 2020 and repeals Notice 121 of 2016 on the exemption, which expired 31 December 2018.

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