Beijing offers tax credits to patent-packing, R&Ding chip outfits great and very small

Big list of requirements to get the financial boost – and no mention of 'cut and paste from the West'

China's Ministry of Industry and Information Technology has defined the types of silicon companies it is willing to offer tax credits – and even small outfits are invited to apply if they have some patents in their pockets.

The tax relief is part of a group of measures snappily titled "Several Policies to Promote the High-quality Development of the Integrated Circuit Industry and Software Industry in the New Era."

The credits will be offered to companies pulling in more than 10 to 20 million yuan ($1.5m-$3m) sales revenue in a year, depending on what they are selling.

To be eligible, a company must be based in China, offer a qualifying product type – such as IC manufacturing equipment, packaging and testing tools, chip designs, etc. – and be an "independent legal personality." Hong Kong, Macau, and Taiwan do not count. Recipients also must be free of safety or environmental violations, major quality accidents, and have no breach of trust in the year prior to assessment. Also, the company will need to have all required and necessary premises and equipment.

Chip design companies will additionally need to:

• Contract more than 20 employees. On a monthly average, 50 per cent or more need to have a bachelor's degree or higher, and 40 per cent or more need to be R&D personnel.
• R&D expenses must be more than 6 per cent of total sales (operating) income.
• Annual integrated circuit design sales income must be more than 60 per cent of total sales income, and independent design revenue needs to account for more than half of total sales income, which must exceed 15 million yuan ($2.3m).
• Obtain a minimum eight patents, layout design registrations or computer software copyrights related to IC product design<./li>
• Have proper electronic design automation tools and related software.

For equipment companies:

• On a monthly average, 40 per cent or more need to have a college degree or higher and 20 per cent or more need to be R&D personnel.
• R&D expenses must be more than 5 per cent of total sales income.
• Annual sales income of IC equipment of key parts and components is more than 30 per cent of a more than 15 million yuan ($2.3m) total sales income.
• Have minimum five patents related to R&D and manufacturing of IC-related equipment or components.

For material companies:

• On a monthly average, at least 40 per cent of contracted employees must have a college degree and more than 15 per cent must be R&D personnel.
• R&D expenses must be more than 5 per cent of total sales income.
• Annual sales income of IC materials must be more than 30 per cent of a more than 10 million yuan (US$1.5m) total sales income.
• Have minimum five patents related to R&D and production of IC materials.

For packaging and testing companies:

• On a monthly average, at least 40 per cent of contracted employees must have a college degree and more than 15 per cent need to be R&D personnel.
• R&D expenses must be more than 3 per cent of total sales income.
• Annual sales income of IC packaging and testing is more than 60 per cent of a more than 20 million yuan ($3m) total sales income.
• Have minimum five patents or computer software copyrights related to IC packaging and testing.

China has tried numerous ways to boost the number of ICs it produces. While the Middle Kingdom has a goal to be 70 per cent self-sufficient in this area by 2025, it makes at home only 5.9 per cent of the silicon it needs, according to one estimate this year.

China's uphill semiconductor production battle comes amid technology bans put in place by the US that have hindered Beijing's efforts: these include limited access to American chip-making technology, the Trump administration's Clean Networks Plan, and top Chinese chip-maker SMIC's addition to the Treasury Department entity list, all in the middle of a worldwide semiconductor shortage. ®