Key Provisions of the Tax Policy 

The new policy introduces a tax credit mechanism that allows enterprises to offset part of their income tax liabilities by investing in the digital and intelligent transformation of special equipment. Below is an in-depth look at the major components of this policy:

Tax Credit for Investment in Transformation

Enterprises that invest in the digital and intelligent transformation of special equipment can benefit from a tax credit of up to 10% of the investment amount. This credit applies to the enterprise’s income tax payable for the year in which the investment was made. However, the investment must not exceed 50% of the original tax base of the special equipment at the time of purchase. If the tax credit exceeds the enterprise’s tax liability in the current year, the unused portion can be carried forward for up to five years.

Scope of Special Equipment

The policy applies to specific types of special equipment listed in the 2018 edition of the “Preferential Catalogue of Enterprise Income Tax for Special Equipment for Production Safety” and the 2017 edition of the “Preferential Catalogue of Enterprise Income Tax for Energy-Saving, Water-Saving, and Environmental Protection Equipment.” Post-transformation, the equipment must still meet the conditions outlined in these catalogs to qualify for the tax incentive. If these catalogs are updated, the new provisions will apply.

Definition of Digital and Intelligent Transformation

The policy outlines several key areas where digital and intelligent transformation should occur:

Data Collection 

Utilizing technologies such as sensing, automatic identification, and industrial control data analysis to monitor and gather information on the performance, operating status, and environmental conditions of the special equipment.

Data Transfer and Storage

Implementing network connection, protocol conversion, and data storage technologies to ensure effective data transmission and storage.

Data Analysis

Applying data calculation, processing, statistical analysis, and simulation to improve fault diagnosis, predictive maintenance, and the optimized operation of special equipment.

Intelligent Control

Enhancing functions like monitoring, alarm systems, and feedback control using automation and intelligent technologies.

Digital Security and Protection

Strengthening data confidentiality and integrity through data encryption, vulnerability scanning, and other security measures.

Eligibility and Compliance Requirements

Enterprises must ensure that their digital and intelligent transformation projects result in fixed asset value increases for the special equipment. The policy specifically excludes value-added tax refunds and costs associated with transportation, installation, and commissioning of the equipment from the eligible investment.

Furthermore, enterprises must retain the transformed special equipment for at least five years to continue benefiting from the tax credit. If the equipment is transferred or leased within this period, the enterprise must repay the credited tax.

Special Considerations for Leasing

Enterprises that lease special equipment through financial leasing arrangements, where ownership is transferred to the lessee at the end of the lease, can also qualify for the tax credit. However, if ownership does not transfer, the lessee must forgo the tax benefit and repay any credited tax.

Exclusions and Record-Keeping

Investments made using government appropriation funds are not eligible for the tax credit. Enterprises must maintain separate accounting records for each digital and intelligent transformation project, ensuring clear documentation of all related expenses. Failure to accurately track these costs will disqualify the enterprise from the tax benefits.

Enterprises must also prepare a digital and intelligent transformation plan or obtain a technology development or service contract to qualify for the tax incentives. In cases where the tax authorities cannot determine whether a project qualifies as a digital and intelligent transformation, they may seek an appraisal from relevant industry and technology departments.

Implications for Enterprises

This new tax policy provides a significant incentive for enterprises to modernize their special equipment, particularly in sectors critical to energy conservation, environmental protection, and safety. By embracing digital and intelligent technologies, enterprises can enhance their operational efficiency, reduce environmental impact, and improve safety standards.

Moreover, the ability to offset a portion of the investment cost against income tax liability reduces the financial burden of such transformations, making it a more attractive proposition for businesses.

Conclusion

The enterprise income tax policy for the digital and intelligent transformation of special equipment is a forward-thinking initiative that supports China’s broader goals of industrial modernization and sustainable development. By leveraging this policy, enterprises can not only gain financial benefits but also position themselves at the forefront of technological innovation and environmental stewardship.

Enterprises planning to take advantage of this policy should carefully review the eligibility criteria, maintain meticulous records, and ensure compliance with all relevant regulations. This proactive approach will enable them to fully realize the benefits of the tax credit and contribute to a more sustainable and technologically advanced industrial landscape in China.