China unveils major tax incentive policy to encourage innovation in domestic semiconductor industry
- For chip design, packaging, testing and relevant equipment, materials and software enterprises, the first two years of profits will be tax exempt
- Shanghai’s STAR market has been the preferred venue for China’s chip makers, with SMIC raising 53 billion yuan (US$7.58 billion) in July
Beijing has introduced new tax incentives for domestic semiconductor players in the latest effort to boost an industry that has become a key battleground in the tech war between China and the US.
Under the new policy introduced by the State Council, qualifying integrated circuit (IC) projects and enterprises that have operated for more than 15 years will be exempt from corporate income tax for up to 10 years if they employ the 28-nanometre process or more advanced nodes, while projects from 65nm to 28nm will get five years tax free and a 50 per cent discount on the corporate rate for the subsequent five years.
The preferential period starts from the first profit-making year for IC manufacturing enterprises according to an official central government document published online on Tuesday.
For chip design, packaging, testing and relevant equipment, materials and software enterprises, the first two years of profits will be exempt from corporate income tax and companies will receive a 50 per cent discount on the statutory tax rate of 25 per cent over the next three years.
“Frankly, this will be of some help [for the domestic semiconductor industry], but [the assistance] is not necessarily huge,” said Sheng Linghai, an analyst at Gartner.
Sheng said most Chinese semiconductor foundries generate most of their revenue from products at 55 nanometre and above so the favourable policies will be of more direct help to the established operations like Semiconductor Manufacturing International Corporation (SMIC) and Shanghai-based Huahong, the only two foundries that can produce chips using the 28nm processing node.