China semiconductors: Beijing moves to prevent tax incentive abuse with new policy draft
- The rule sets the ratio of revenue earned directly from semiconductor products at 80 per cent of annual revenue for companies in chip packaging and testing
- Favourable policies, coupled with a growing appetite from private capital, has fuelled a boom in the number of semiconductor companies since last year
China clarified eligibility rules for semiconductor companies seeking tax incentives in a draft policy issued on Friday, a move aimed at preventing abuse of the system after many firms outside the sector jumped in looking for quick profit gains.
The rule sets the ratio of revenue earned directly from semiconductor products at 80 per cent of annual revenue for mainland Chinese companies involved in the packaging and testing of chips and 60 per cent for developers of electronic design automation (EDA) software. The ratio was set at 30 per cent for firms involved in semiconductor materials and equipment.
In terms of revenue, semiconductor equipment makers and packaging and testing firms will need to generate 20 million yuan (US$3.1 million) a year to be eligible while the minimum for EDA suppliers was set at 15 million yuan. The threshold for companies involved in semiconductor materials was set at 10 million yuan.
The revenue thresholds were “not considered high”, said a semiconductor analyst with China Merchants Bank, who requested anonymity because he was not authorised to speak publicly.
China still relies on foreign technologies, especially imports of US core technology, to ensure the integrity of its hi-tech supply chain.