Establishment of a wholly foreign owned enterprise ( WFOE ) R & D center

R&D Center known as: Research and Development Center

Form and business scope of the wholly foreign owned enterprise ( WFOE ) R&D center

  • (I) The wholly foreign owned enterprise ( WFOE ) R&D center can be either in the form of a Sino-foreign joint venture, a Sino-foreign cooperative enterprise or a wholly foreign owned enterprise ( WFOE ) enterprise lawfully established by the foreign investor ( including wholly foreign owned enterprise ( WFOE ) investment company ), or in the form of an independent department inside the wholly foreign owned enterprise ( WFOE ) enterprise or a branch thereof.
  • (II) The R&D center refers to the institution engaged in research, exploitation and experimental development ( including the intermediate test serving R&D activities ) in natural science and its related science and technology fields, of which the R&D content includes fundamental research, product application research, high-tech research and social research for public welfare. The R&D subject excludes prohibited items in the Catalogue of Industries for Guiding Foreign Investment.

The establishment conditions of wholly foreign owned enterprise ( WFOE ) R&D center

  • (I) Have explicit R&D field and detailed R&D project with fixed premise, essential instruments and equipment for scientific research and other necessary scientific research conditions. In addition, the investment used for R&D by the R&D center shall be no less than USD 2 million.
  • (II) The R&D center shall be equipped with full-time management and R&D personnel, and the proportion of personnel directly engaged in R&D activities with at least bachelor degree to the total number of staff in the R&D center shall be no less than 80%.

Establishment process of wholly foreign owned enterprise ( WFOE ) R&D center

(I) The establishment of R&D center by foreign businessmen in the form of joint venture, cooperation and sole proprietorship shall be examined and approved by the provincial-level examining and approving department.

(II) Set up R&D center inside the wholly foreign owned enterprise ( WFOE ) enterprise ( including the investment company ).

  • 1. The establishment of R&D branch or independent R&D department shall be examined and approved by the examining and approving authority set up by the wholly foreign owned enterprise ( WFOE ) enterprise according to its corresponding limit of authority. For the restricted A-class enterprise below the norm, its approval shall be granted by the provincial-level examining and approving department ( or accept record filing according to the following provisions ).
  • 2. For the wholly foreign owned enterprise ( WFOE ) enterprise establishing an inside independent R&D department, if its business scope includes the ‘research’ or ‘development’ business, then the enterprise shall make a supplementary of relevant materials of the independent R&D department and put on records to the original examining and approving authority. if its business scope does not include the above businesses, then the enterprise shall modify its Contract and Articles of Association, and submit them to the original examining and approving authority for approval. Qualification-identified conditions of the record-filing and business-adding enterprise:

(III) The following contents shall be added to the application report submitted to the examining and approving authority:

  • 1. The R&D direction, field, main task and implementation plan.
  • 2. Situation of the premise, personnel and relevant scientific research conditions.
  • 3. Source, detailed use and sum of the needed capital for carrying on R&D, and the corresponding financial budget report.
  • 4. Imported self-use facilities and supporting technologies, accessories and spare parts within the aggregate investment or with the self-owned funds, and the research samples as well as the chemical reagent list during the R&D process.
  • 5. Statement on the advancement of the R&D contents, and ownership of the R&D results.

Other relevant regulations of China R&D

(I) The wholly foreign owned enterprise ( WFOE ) R&D center shall carry out R&D business activities lawfully, and the investment of setting up R&D center must be used for conducting R&D business activities.

(II) For the R&D center established in the form of an independent department or a branch, its expenditure required shall be separately accounted for and calculated independently in the annual financial budget of the enterprise setting up this center.

(III) The investment of the restricted A-class enterprise for setting up the R&D center in the form of an independent department or a branch shall accounts for no more than 50% of the total enterprise investment.

(IV) The R&D center shall report its R&D progress and business activities of the previous year to the examining and approving authority before March 31 every year.

The R&D center enjoys preferential policies according to relevant national regulations

  • I. Under the circumstance that the imported self-use facilities and supporting technologies, accessories and spare parts (excluding commodities, ships, aircraft, special vehicles and construction machines in the Catalogue of Imported Commodities Not Exempted from Taxes in wholly foreign owned enterprise ( WFOE ) Projects) within the total investment are only limited to the range of laboratories or pilot tests without production scale, then the import tariff and import linkage tax can be exempted.
  • II. Under the circumstance that the technical reform is conducted with self-owned funds, for the imported self-use facilities and supporting technologies, accessories and spare parts within the originally approved business scope which conform to the previous provisions and Circular of the General Administration of Customs on Import Tax Policy for Further Encouraging Foreign Investment. (SS [1999] No.791), the import tariff and import linkage tax can be exempted.
  • III. The transfer income of the self-owned R&D technology is exempted from business tax.
  • IV. If the technological development expense increases by more than 10% (including 10%) compared with that in the last year, then 50% of the actual incurred amount of technological development expense can be deducted from the taxable income in the current year with the approval from the tax authority.
  • V. Other preferential policies stipulated by the State.

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