On 4 August 2020, China's State Council issued a Policy Notice on policies to promote the development of the integrated circuit and software sectors. For encouraged integrated circuit (IC) production enterprises and projects, the notice includes the following incentives:

• a 10-year corporate tax exemption for IC enterprises and projects employing a process of 28 nanometers or less that have been operating for more than 15 years;
• a 5-year corporate tax exemption followed by a 50% rate reduction for 5 years for IC enterprises and projects employing a process of 65 nanometers or less that have been operating for more than 15 years;
• a 2-year corporate tax exemption followed by a 50% rate reduction for 3 years for IC enterprises and projects employing a process of 130 nanometers or less that have been operating for more than 10 years; and
• an extended loss carryforward period of 10 years for IC enterprises and projects employing a process of 130 nanometers or less.

The incentives apply from the first profit making year for the IC enterprise, or the first business revenue collection year for the IC project.

In addition to the incentives for IC production enterprises and projects, incentives are also provided for encouraged enterprises involved in IC design, equipment, materials, packaging, testing, and software, including a 2-year corporate tax exemption followed by a 50% rate reduction for 3 years. For "key" encouraged IC design and software enterprises, a 5-year exemption is provided, followed by a reduced rate of 10% for subsequent years.

IC enterprises and software enterprises will also continue to enjoy preferential VAT policies, which includes zero-rating for IC design and testing services and software services. Lastly, import duty exemptions are provided on raw materials, consumables, and parts by qualifying enterprises manufacturing memory with integrated circuits employing a process of 65 nanometers or less.

The policy notice provides that it will be implemented from its date of issuance. Further details on the implementation of the policies are expected from the Ministry of Finance and the State Administration of Taxation and will be published once available.