China gives more chip design firms a tax break amid trade tensions

China's finance ministry has said that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before end-2018.
China's finance ministry has said that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before end-2018.PHOTO: REUTERS

BEIJING (REUTERS) - China is making preferential tax treatment available to more chip design and software firms, in an effort to support domestic industries amid escalating trade tensions with the United States.

In line with a state council directive in early May, the finance ministry said on Wednesday (May 22) that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before the end of 2018.

Until now, such tax relief was only available to firms that reported a profit by the end of 2017.

China's continued support for the tech industry comes after US President Donald Trump raised tariffs on US$200 billion (S$275 billion) worth of Chinese imports to 25 per cent from 10 per cent.

The United States also added the telecoms giant Huawei Technologies to a trade blacklist last week, effectively banning US companies from doing business with the Chinese firm.

But investors and analysts say Huawei's troubles could accelerate a long-term campaign in China to replace imported technologies.

In a bid to raise China's slowing economic growth rate, Beijing has announced a series of measures to reduce companies' tax burdens.

The Finance Ministry's move to give more chip design firms a tax holiday did not include any change in the tax. During their third to fifth years of operation, the rate remains 12.5 per cent.