China CIT New Preferences | Digitalization and Intellectualization of Special Equipment (1)
The Ministry of Finance and the State Administration of Taxation (SAT) jointly issued the «Announcement on the Enterprise Income Tax Policies for the Digital and Intelligent Transformation of Special Equipment for Energy and Water Conservation, Environmental Protection, and Work Safety» (“Announcement”), which explicitly states that if an enterprise digitizes and intelligently renovates its specialized equipment, the renovation inputs can be eligible for the Chinese Corporate Income Tax (CIT) Policies credit.
Concept of special equipment
Special equipment refers to equipment that meets the conditions of equipment category, equipment name, performance parameters, application fields, and implementation standards stipulated in the corresponding catalog.
Specialized equipment can be broadly divided into 1) special equipment for work safety; 2) special equipment for energy and water conservation; and 3) special equipment for environmental protection.
Only equipment that meets the conditions outlined in the corresponding catalogs in the following two Notices can be recognized as special equipment entitled to CIT incentives.
In addition, if any transformation of the special equipment, it should still meet the conditions stipulated in the corresponding catalog in the above notification documents, otherwise, it shall not be entitled to CIT incentives.
Main aspects of digital and intelligent transformation
1. Data acquisition
Utilizing sensing, automatic identification, system reading, industrial control data analysis, and other data acquisition technologies, the performance parameters, operating status, and environmental status of special equipment and other information are converted into digital form to realize the monitoring and collection of information on special equipment.
2. Data transmission and storage
Utilizing network connection, protocol conversion, data storage, and other data transmission and management technologies, the collected data of the special equipment will be transmitted and stored to realize the effective pooling of the collected data of the special equipment.
3. Data analysis
Using data computation processing, statistical analysis, modeling simulation, and other data analysis technologies, the collected special equipment information is analyzed in depth to realize the improvement of special equipment fault diagnosis, predictive maintenance, and optimized operation.
4. Intelligent control
Using automation technology and intelligent technology, special equipment monitoring and warning, dynamic adjustment, feedback control, and other functions are upgraded to realize the intelligent control of special equipment.
5. Digital security and protection
Utilizing data encryption, vulnerability scanning, authority control, redundant backup, and other data and network security technologies, the data confidentiality and integrity of special equipment shall be strengthened, and the data and network security risk prevention and control capability of special equipment shall be significantly improved.
6. Finance under the State Council
taxation authorities in conjunction with the departments of science and technology, industry, and information technology to provide for other digitalization and intelligent transformation situations.
Criteria for CIT crediting
The investment in the digital and intelligent transformation of special equipment incurred by a company, which does not exceed 50% of the original tax base when the special equipment is purchased, may be credited against the CIT payable in the current year at a rate of 10%.
If the CIT payable by the company in the current year is insufficient for the credit, the deficiency can be carried forward to subsequent years for a maximum period of five years.
In our next article, we will continue to study the other points of this Announcement that the company should pay attention to. Such as the requirement for accounting and regulatory, and case studies.
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