Nowadays, most of the tax incentives implemented in China require taxpayers to determine by themselves whether they are qualified, declare and enjoy tax incentives and retain relevant materials for future inspection. Under such circumstances, enterprises shall actively prevent their own tax-related risks when enjoying tax preferential policies on the basis of the provisions of tax policies.

In this article, Kaizen will briefly analyze the difference between software service and technology development service and summarize the VAT exemption filing procedures for technology development service for the existing and potential clients’ reference.

From the perspective of VAT levy, both software service and technology development service are classified to be Modern Service, while under different subclass, therefore, it is easy for enterprises to confuse the software development service they undertake with the technical development service. The table below is comparison of the two types of service:

Taxpayers shall bring written contracts on technology transfer or development to apply with the provincial science and technology department where the taxpayer is located for contract identification and verification first and bring the verification opinion certificate issued by science and technology department to handle VAT exemption filing.

Taxpayers should reply on the provisions of tax policy when determining whether their income is eligible for tax exemption. It should be noted that even if the taxpayer has obtained verification opinion certificate from the competent science and technology department for contract identification and verification and has filed with the competent tax authority for VAT exemption, whether he meets the conditions for VAT exemption needs to be determined by the taxpayer himself, and the relevant risks shall be borne by the taxpayer. When handling VAT exemption filing case, the tax authorities usually apply the principle of presumption of good faith and review the completeness of the information only. If it is found afterwards that it does not meet the conditions for tax exemption, the tax authorities have the right to recover the tax.

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