What You Need to Know About VAT Refunds for Foreign R&D Centers in China The import VAT exemption to foreign-funded Research and Development centers includes independent legal entities, R&D departments or R&D branches of foreign-invested companies provided certain conditions are met. Chinese authorities have recently announced that the import tax exemption on purchases of certain R&D equipment and devices by foreign invested R&D centers would continue. Circular 88 released jointly by The Ministry of Finance (MoF), the Ministry of Commerce (MOFCOM), the General Administration of Customs (GAC) and the State Administration of Taxation (SAT) also confirmed the extension of Value Added Tax (VAT) refund on purchase of domestically-manufactured equipment available for domestic and foreign invested R&D institutions. The circular is effective from 1 January 2011 to 31 December 2015.
Criteria for foreign invested R&D centers that qualify for tax incentives
The status of qualified R&D centers to be reviewed and verified by the department of commerce and other relevant departments. Total investment is the total amount of investment as specified in the approval certificate of the foreign investment enterprise (FIE). Total R&D contribution refers to the FIE's investment in assets for the establishment and development of the R&D centre. This also includes assets to be delivered pursuant to executed purchase contracts. The lists of purchased assets and contracts for assets to be purchased have to be provided to the approving authorities. Average “Annual R&D expenditures incurred for R&D activities during the most recent two fiscal years needs to be calculated. Expenditures either in cash and contribution in kind for R&D activities should not be less than 60% of the total R&D expenditures. 'Full time R&D personnel' refers to full time R&D personnel involved in basic research, application research and experimental development. This also includes (a) personnel directly involved in the above mentioned activities; (b) full time technology personnel; (c) personnel involved in preparing research related documents, supplying materials and equipment. All the above personnel need to have employment contracts with the R&D centre or the FIE with a term of more than one year.
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The status of qualified R&D centers to be reviewed and verified by the department of commerce and other relevant departments.