[Q&A] Can My Company Qualify as a High-tech Enterprise?
2023. 1. 6
[Q&A] Can My Company Qualify as a High-tech Enterprise?
As a corporate law firm, we are used to answering many questions from our clients about their business in China. In this series of Q&A articles, we will discuss some of the topics that our clients have shown interest in.
Q: How to find out if my company meets the standards of the Accreditation of High-tech Enterprises?
A: Many companies attempt to apply for the Accreditation of High-tech Enterprise, but are unsure if they meet the conditions or not.
The legal basis for the Accreditation of High-tech Enterprises consists of the Administrative Measures on Accreditation of High-tech Enterprises (hereinafter referred to as the “Measures”), jointly issued by the Ministry of Science and Technology, the Ministry of Finance and the State Administration of Taxation in 2016, and the Guidelines for the Administration of the Identification of High & New Technology Enterprises (hereinafter referred to as the “Guidelines”) jointly issued by the mentioned above departments during the same year.
According to the Article 11 of the Measures, an enterprise shall satisfy all the following criteria to be Accredited as a High-tech Enterprise:
(1) It has been established for more than one year at the time of application for accreditation;
(2) It has obtained intellectual property ownership for the core technology of its key products (services) through independent research and development, assignment, acceptance of gift, merger and acquisition, etc.;
(3) The core technology of its key products (services) falls under the scope stipulated in the Regions of Advanced Technologies Strongly Supported by the State;
(4) Its technical personnel engaging in research and development and the relevant technological innovation activities constitute more than 10% of the total number of employees of the enterprise in the current year;
(5) The percentage of the total amount of expenditure for research and development in the past three accounting years (where the actual operating period is less than three years, calculate in accordance with the actual operating period, same hereinafter), as part of the total amount of revenue from sales, shall satisfy the following requirements:
(a) The percentage shall not be less than 5% for enterprises whose revenue from sales in the past year is less than RMB 50 million (inclusive of);
(b) The percentage shall not be less than 4% for enterprises whose revenue from sale in the past year ranges from RMB 50 million to RMB 200 million (inclusive of); and
(c) The percentage shall not be less than 3% for enterprises whose revenue from sales in the past year is more than RMB 200 million.
The percentage of the total amount of research and development expenses incurred in China by the enterprise constitutes not less than 60% of its total amount of research and development expenses;
(6) The revenue from high-tech products (services) constitutes more than 60% of the total revenue of the enterprise in the current period;
(7) The enterprise's innovation capacity evaluation satisfies the corresponding requirements; and
(8)The enterprise has no record of major safety or quality incident or serious environmental violation during the year preceding the application.
Among them, Items (1) to (6) and (8) are called the “threshold index”, which are necessary conditions – that is, if any of the conditions is not met, it cannot be identified as a High-tech Enterprise. Item (7) is called “evaluation index”, as a scoring standard that gives an evaluation result higher than 70, which allows some differences or insufficiencies .
In addition, for the already mentioned Item (2) of the Measures, the intellectual property ownership for the core technology of its key products (services) shall specifically meet the following requirements:
(1)Enterprises without intellectual property rights shall not be identified as High-tech Enterprises ("One vote veto").
(2)The intellectual property rights referred to in the accreditation of High-tech Enterprises must be authorized or approved and validated in China, and within the effective protection period of Chinese law.
(3)The owner of intellectual property rights should be the applicant enterprise. During the period of applying for the High-tech Enterprise Accreditation, when there are multiple owners of intellectual property rights, only one owner is entitled to use it when applying.
(4)In the Accreditation of High-tech Enterprises, the intellectual property rights of enterprises are evaluated by classification, among which: patents for invention (including national defense patents), new plant varieties, national crop varieties, national new drugs, national first-class protected varieties of traditional Chinese medicine, exclusive rights of integrated circuit layout design, etc. are evaluated according to Class I. The patent rights for a utility model or a design, software copyrights, etc. (excluding trademarks) are evaluated according to Class II. Class II evaluated intellectual property rights shall only be adopted once when applying for High-tech Enterprises.
(5)The validity of the patents when applying for accreditation is based on the premise that the enterprise obtains the authorization certificate or authorization notice with providing the payment receipt before applying.
For enterprises that plan to apply for Accreditation of High-tech Enterprises, it is feasible to combine the above legal provisions and guidelines to conduct a self-examination, or entrust an attorney to assist with the estimation. For the proportion of research and development, enterprises could appoint an accounting firm to conduct special audits to determine whether they meet the relevant standards. If the conditions of the enterprise are eventually identified as not yet meeting the standards, it is suggested that the enterprise should suspend the application for the Accreditation of High-tech Enterprises, and subsequently submit and pass the application once all relevant conditions are met.
Let us know if you would like to discuss this further and our lawyers will be happy to help at any stage of the process.
