Laws of the Shanghai Province

(Revised on December 10, 2004)

In order to implement the "Law of the People' s Republic of China on Promoting the Transformation of Scientific and Technological Achievements" and the "Action Program of Shanghai for Revitalizing the City Through Science and Education" , accelerate the transformation of new and high-tech achievements in this Municipality, actively cultivate new industries, optimize the structure of the new and high-tech industry and form a new and high-tech industry chain, these Provisions are formulated.

1. The Municipal People' s Government shall publish a "Guidance Catalogue of High-tech Industries and Technologies in Shanghai" . Any legal person or natural person may, in accordance with the Guidance Catalogue published by the Municipal People' s Government, apply for the accreditation of the transformation projects of new and high-tech achievements and of new and high-tech enterprises.

Relevant departments of the Municipal People' s Government shall jointly establish a "one-stop" service window at the Shanghai Service Center for Transformation of New and High-tech Achievements to provide the service for policy consultation, and to coordinate settlement of the difficult problems that may arise in the process of the transformation of new and high-tech achievements and of the development of new and high-tech enterprises.

2. This Municipality practices the accreditation system for the transformation projects of new and high-tech achievements. The Shanghai Service Center for Transformation of New and High-tech Achievements shall accept and handle, and be responsible for organizing the accreditation of the transformation projects of new and high-tech achievements all the year round. With regard to the accredited projects of software, integrated circuit and innovative medicine, all scientific research projects listed in the National 863 Plan, and the projects that have won the financing from the fund for technological innovation by small and medium-sized enterprises of scientific and technological type, the accreditation procedures for transformation of achievements shall be simplified.

Where the transformation contents of an accredited transformation project of new and high-tech achievements are found to run counter to the application of the project seriously or the transformation has not been implemented within a prescribed period of time, such project shall be deprived of its accreditation qualification and be stopped from continuing to enjoy relevant preferential policy treatment.

3. This Municipality practices the accreditation system for new and high-tech enterprises. The Shanghai Municipal Office for Accreditation of New and High-tech Enterprises shall accept and handle, and be responsible for organizing the accreditation of new and high-tech enterprises in this Municipality all the year round. With regard to the accredited enterprises of software or integrated circuit, the accreditation procedures shall be simplified. The accredited new and high-tech enterprises may enjoy relevant preferential policy as prescribed. New and high-tech enterprises shall be encouraged to converge at the national high-tech industry development zone.

4. All kinds of enterprises and institutions, particularly institutions of higher learning, scientific research institutes and state-owned enterprises and institutions shall carry out in various ways the practice of the technological and managerial factors participating in the distribution of income. With regard to the transformation of job-related achievements, the parties concerned may agree on the stock right, yields or rewards due to the persons who made the achievements, according to the mode of transformation.

If new and high-tech achievements are invested as stocks in the transformation project, the person who made the achievements may be entitled to no less than 20% of the stocks corresponding to the investment.

If the new and high-tech achievement is transferred to others for transformation, the person who made the achievements may be entitled to no less than 20% of the after-tax income from the transfer.

Where the tranformation of an achievement is carried out by an enterprise or institution itself or in cooperation with others, the enterprise or institution may, within 3 to 5 years upon the project making a profit, draw every year no less than 5% of the after-tax profit realized from the transformation to reward the person who made the achievement; with regard to an achievement independently developed by an enterprise that does not belong to its mainline business areas, the enterprise may, within 3 to 5 years upon the project making a profit, draw every year 10% of the after-tax profit realized from the transformation to reward the person who made the achievement.

Scientific and technological personnel in institutions of higher leaning, scientific research institutes, and state-owned enterprises and institutions may, when coming up against difficulties in carrying out the practice of the technological and managerial factors participating in the distribution of income, consult or make complaints to the Shanghai Service Center for Transformation of New and High-tech Achievements.

5. If a new and high-tech achievement is invested as intangible property in a transformation project, its value as intangible property may account for up to 35% of the registered capital. If the parties to the cooperation have agreed on the percentage otherwise, such agreement shall prevail.

When new and high-tech achievements are invested as intangible property, their value shall be assessed by a qualified assessment agency, or may be approved through consultation by the investors, who agree to bear joint and several liabilities. The enterprise shall go through the capital verification formalities on the strength of the assessment report issued by the assessment agency or the agreement made by the investors on bearing joint and several liabilities.

Institutions of higher learning and scientific research institutes with corporate capacity may establish foreign-invested new and high-tech enterprises in cooperation with foreign investors.

Domestic scientific research personnel who have worked in a foreign-invested new and high-tech enterprise for over one year are allowed to become Chinese investors in that enterprise. A foreign-invested high-tech enterprise may practice the mode of sub-contracting the processing or production of its R&D products, and shall be allowed to lease its own products.

6. When an accredited new and high-tech enterprise (solely state-owned) is carrying out the transformation of the ownership, the enterprise may, upon approval of the investors, use no more than 35% of the past 3 years' added value from the state-owned net assets (not including the added value from the real estate) as stocks to reward the personnel who made contribution to the enterprise, particularly scientific and technological and managerial personnel.

A high-tech enterprise, or an enterprise engaged in a transformation project of new and high-tech achievements may reward scientific and technological and managerial personnel in such forms as share option, stock option or technological dividends. The person enjoying technological dividends may use the technological dividends as investment to buy the stocks of the enterprise and go through the registration formalities for stock right according to law.

7. Enterprises are encouraged to boost the input into technological development. The expenses for technological development (including the expenses for the designing of new products, formulation of technological procedures, modulation of equipment, patent and technological data retrieval specially used for research activities, and the scientific research and trial manufacture entrusted to other units, and other expenses related to the trial manufacture and technological research of new products) incurred by an enterprise in the current year may be listed in expenditure according to reality; where those expenses actually increase more than 10% over the previous year, 50% of the expenses actually incurred in technological development may again be deducted from the taxable income for the current year. The expenses incurred by the enterprise in the purchase of the special-purpose or key installations and testing instruments for trial manufacture that are specially needed for the development of a new technology or for the research and manufacture of a new product may be included in the cost in one lump-sum or in installments. The revenues from technological transfer or technological development and the related technological consultation or service shall be exempted from business tax.

The expenses for technological development actually incurred by the industrial group with the support mainly from the state assets shall be not less than 1% to 3% of the sales income in the current year.

8. An accredited transformation project of new and high-tech achievements of the enterprise registered in this Municipality shall, according to the condition of fulfilling comprehensive economic index and the specific nature of intellectual property of the project, be given support for its special research and development from the special financial fund within a certain period of time upon accreditation. The government shall, refund the land-use fees and the rents for leasing land for the transformation project of new and high-tech achivements within three years upon the accreditation of realization of manufacture or trial manufacture by the Shanghai Service Center for Transformation of New and High-tech Achievements. The transaction fees for purchasing housing for production or business and the property rights registration fees shall be exempted. In case the land use nature is changed or the land is not used for the transformation project of new and high-tech achivements, the amount granted in the preferential treatment enjoyed by the enterprise shall be returned in full.

9. All kinds of capital at home and abroad shall be encouraged to set up business-starting investment companies with a registered capital of not less than RMB 10 million yuan as well as business-starting investment management companies with a registered capital of not less than RMB 1 million yuan.

A business-starting investment company accredited by the Municipal Business-starting Investment Trade Association entrusted by the competent administrative department of business-starting investment may, according to the State-set provisions, use the whole amount of its capital as investment. Where the balance of the fund invested by a business-starting investment company in accredited transformation projects of new and high-tech achievements and new and high-tech enterprises exceeds 50% of its net assets and the fund balance of its investment in other fields does not exceed 30% of its net assets, such company shall be given support from special financial fund.

Where a business-starting investment management company in this Municipality accredited by the Municipal Business-starting Investment Trade Association manages the investment in accredited transformation projects of new and high-tech achievements and new and high-tech enterprises, such company shall be given support from the special financial fund for its yields from investment, income from the management fees and bounty for its achievements, within 3 years from the year of gaining profit.

A business-starting investment company registered in this Municipality may draw not more than 10% of its total income as the risk reserve fund which shall be matched by an equal amount allocated from the Municipal Special Fund for Science and Technology. The municipal and district/county science and technology commissions shall jointly set up the special risk relief fund for business-starting investment, and the specific procedures for such set-up shall be formulated separately by the Municipal Science and Technology Commission jointly with the Municipal Finance Bureau.

10. This Municipality and districts/counties shall give interest discount on loans or guarantees for financing from relevant special funds for accredited transformation projects of new and high-tech achievements.

Where a guarantee agency provides financing guarantee accredited transformation projects of new and high-tech achievements or new and high-tech enterprises, it shall, upon the verification and approval by the competent administrative department of finance, be given certain compensation for the compensation loss incurred in the projects.

Guarantee agencies under the municipal and district/county finance shall step by step increase the proportion of the guarantee amount for transformation projects of new and high-tech achievements and new and high-tech enterprises.

With regard to scientific and technological projects with small capital but high scientific and technological contents, exploration may be made into practicing credit guarantee and the mode of linking guarantee to intangible property like patent.

11. Where interprises (including Chinese investors in foreign-invested enterprises) registered in Shanghai and paying corporate income tax invest the after-tax profit of recent 3 years in accredited transformation projects of new and high-tech achievements, form or increase their capital, and the term of their investment contracts exceeds 5 years, they shall be given support from special financial funds within the second year. Where the foreign investors in foreign-invested enterprises reinvest directly the profit obtained from the enterprises, the corporate income tax already paid on such reinvested profit shall be refunded according to the tax law.

Where scientific and technical personnel engaged in the transformation of new and high-tech achievements invest the income obtained from the transformation of achievements in accredited transformation projects of new and high-tech achievements or new and high-tech enterprises, they shall be given support from the special financial fund within the second year.

12. The Shanghai Municipal Guidance Commission on Incubators of Scientific and Technological Enterprises shall be established to promote enhancement of the service functions of incubators for the cultivation of enterprises in the transformation of achievements, intermediary service, investment and financing, etc. The municipal and district/county finance shall arrange a special fund to support the incubation bases approved by the Shanghai Municipal Guidance Commission on Incubators of Scientific and Technological Enterprises according to the actual condition of their operation, so as to quicken up the construction of the incubation bases and enhance their service function.

13. The salaries, drawn in Shanghai, of returned overseas students who engage in accredited transformation projects of new and high-tech achievements may enjoy, according to the stipulations, the additional deduction of the cost upon the calculation of the payable personal income tax. The salaries of foreign experts employed by enterprises and research and development agencies may be listed as the cost.

An enterprise established with accredited transformation projects of new and high-tech achievements shall not be restrained by its total wages. The board of directors may autonomously decide upon the standard of wages for its employees, with reference to the market labor prices and the guidelines published by the government for wage increases in the current year. All the wages paid out may be listed as the cost.

14. Scientific and technical personnel in institutions of higher leaning and scientific research institutes may engage in the transformation of new and high-tech achievements as a concurrent occupation. Scientific and technical personnel that engage in the transformation of new and high-tech achievements as a concurrent occupation shall abide by the agreement with their original units, keep their commercial secrets and respect their intellectual property rights; if they need to use the intellectual property rights of their original units or other persons, they should sign a contract with their original units or other persons for permission or assignment to use such intellectual property rights.

Where scientific and technical personnel and managerial personnel leave the institutions such as institutions of higher learning and scientific and technological institutes in their totality or in part to form an organizational system and engage in the transformation of new and high-tech achievements in enterprises, they may enjoy relevant policies on endowment insurance for restructured institutions after consultation with the labor and social security department on the strength of the transformation certificate.

15. The Shanghai Qualifications Assessment Committee on Senior Professional in the Field of the Transformation of New and High-tech Achievements shall be responsible for the assessment of the professional qualifications of engineering and technical personnel, business personnel, managerial personnel as well as personnel engaged in intermediary service and organization who have made contributions in the transformation of new and high-tech achievements. Those who have made outstanding achievements in the transformation of new and high-tech achievements may be awarded corresponding professional titles by waiving conventional constraints.

16. When new and high-tech enterprises and enterprises with accredited transformation projects of new and high-tech achievements bring into Shanghai from other provinces the professional technical personnel, managerial personnel or innovation team with college diplomas or above (with corresponding academic degrees) that are in shortage and urgently needed, the spouses (including those with agricultural residence) and minor children of such persons may move to this Municipality, too.

Overseas students pioneer parks shall be built and the service for overseas students to start businesses shall be improved. The returned overseas students who establish enterprises engaged in software, integrated circuit design or biotechnology shall be given support for their enterprises.

17. The Shanghai Talents Development Fund shall subsidize the accredited new and high-tech enterprises and enterprises with transformation projects of new and high-tech achievements in setting up posts for chief technical executives and chief information executives, and grant allowances to the employed excellent talents who have passed the examination.

The Shanghai Public Practical Training Base for Vocational Training shall open to the vocational training colleges and vocational training agencies that launch training for highly skilled persons, and the training departments of relevant trades and enterprises in this Municipality for use free of charge.

18. The relevant departments of the Municipal People' s Government and the district/county people' s governments shall, according to these Provisions, formulate the implementation rules and service guide. The Shanghai Service Center for Transformation of New and High-tech Achievements shall be responsible for the implementation of these Provisions and perform organization, coordination, supervision, urging and promotion in that regard.Where the policies on the transformation of new and high-tech achievements previously promulgated by this Municipality are inconsistent with these Provisions, these Provisions shall prevail.