May 22, 2019 / 7:40 AM / in 2 months

China gives more chip design firms a tax break amid trade tensions

BEIJING (Reuters) - China is making preferential tax treatment available to more chip design and software firms, in an effort to support domestic industries amid escalating trade tensions with the United States.

In line with a state council directive in early May, the finance ministry said on Wednesday that companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they became profitable before the end of 2018.

Until now, such tax relief was only available to firms that reported a profit by the end of 2017.

China’s continued support for the tech industry comes after U.S. President Donald Trump raised tariffs on $200 billion worth of Chinese imports to 25% from 10%.

The United States also added the telecoms giant Huawei Technologies Co Ltd to a trade blacklist last week, effectively banning U.S. companies from doing business with the Chinese firm.

But investors and analysts say Huawei’s troubles could accelerate a long-term campaign in China to replace imported technologies.

In a bid to raise China’s slowing economic growth rate, Beijing has announced a series of measures to reduce companies’ tax burdens.

The Finance Ministry’s move to give more chip design firms a tax holiday did not include any change in the tax. During their third to fifth years of operation, the rate remains 12.5%.

Reporting by Stella Qiu, Min Zhang and Beijing Monitoring Desk; Editing by Richard Borsuk

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