IP Portfolio in China: Subsidies and incentives and the use of an HK SPV

Yesterday I exposed the content of the new (draft) Regulations of the State Intellectual Property Office (“SIPO”) governing employment inventions (available at :http://chinaipr.com/2012/11/12/new-draft-of-service-inventor-remuneration-regulations-open-for-public-comment/). Today I would like to complete the theme about the importance of building an IP portfolio in China examining some other aspects starting spending a few words on the role of the IP attorney:

To develop a proper portfolio, the IP attorney needs to pay attention to the client’s situation and business model. In fact, many times, clients only think in terms of protecting their own products. However, the client needs to be made aware of uses of IP for other than protecting their own products. That is, a patent that covers only the client’s own product can be used only as a defensive weapon (i.e., defending the product from copying).

Now, it is necessary to point out another aspect: investing in IP can be expensive and if the country in which you are doing business does not provide for an adequate protection there is the risk that you cannot profit substantially from your investment and also your IP rights might be unlawfully exploited. However, the situation in China on both this aspects is continuously improving. China has created a reliable framework for IP rights protection and now is also providing and implementing new policies to subsidize IP. (http://www.gov.cn/zwgk/2012-05/31/content_2149501.htm). The Chinese government has realized that investing in this sector can contribute in the boosting of its economy

Foreign and local companies with investments in China are seeking to adapt and adjust their commercial strategies and adopt effective measures to raise revenue and reduce tax burdens to increase profits.

Shifting a corporate group’s research and development center to China may help companies to generate increased intellectual property assets in China, and also allow multinational companies to take advantage of the Chinese government’s various R&D incentives.

Such incentives reflect the Chinese economy’s gradual shift away from manufacturing toward innovation and the development of intellectual know-how.

In the past, due to a lack of qualified technical personnel and weak intellectual property protection, foreign-invested companies might have had doubts about setting up R&D centers in China. From a tax perspective, before the new Corporate Income Tax Law was implemented in 2008, many of the tax incentives the government granted to foreign invested companies were not related to R&D, giving the enterprises little motivation to set up R&D centers in China.

The situation is now significantly different:

The implementation of intellectual property policies and guidance, such as the 12th Five-Year Plan (2011-15) on National Intellectual Property Development and the 12th Five-year Plan on Patents, have increased the confidence of foreign-invested companies conducting R&D in China. The current reform of the tax system is another key factor that encourages multinational companies to improve products and processes, enhance productivity and set up R&D centers in China. Though the 2008 Corporate Income Tax Law eliminated tax incentives previously available to foreign-invested companies, the Chinese government has maintained its fiscal support for R&D.

As stressed, encouraging and fostering R&D activities is also now a national policy, and is a key tenet of the 12th Five-Year Plan. Such R&D incentives include:

It is also necessary to highlight that on April 14, 2012, China’s Ministry of Finance issued the new “Measures for the Administration of Special Funds for Subsidizing Foreign Patent Applications,.”

The regulation outlines policies for financial assistance for Chinese who file patent applications abroad. Under the new Measures, patent applications can benefit from subsidies when officially prescribed charges occur for the process of filing and searching, service expenses paid to patent agencies, and fees paid for patent examination. To qualify for the subsidy, applicants must be domestic small and medium sized enterprises, public institutions or scientific research institutions. The measures does not define what constitutes a Chinese applicant and may be intended in part to address the dominant role a few Chinese enterprises played in foreign patent filings, especially Patent Cooperation Treaty (PCT) filings (Huawei and ZTE). Under the new Measures, patentees can be subsidized only after the patent is issued. The new regulation also requires novelty, inventiveness, utility, and a stable legal status of the foreign patent. The qualified patent applications under the new regulation also include those made under the Paris Convention, in addition to the PCT. The requirement of the prior rule that the SIPO will “act[] as the PCT receiving office” has been dropped

(http://chinaipr.com/2012/06/12/china-to-provide-financial-incentives-for-filing-patent-applications-abroad/).

Why to use an Hong Kong (Special Purpose Vehicle) as a licensing and IP rights transfer jurisdiction?

Use of the SPV:

-            Parent company transfer all IP rights to Hong Kong SPV subsidiary.

-            Hong Kong SPV licenses IP rights to licensees and receives royalties.

-            Benefits of using Hong Kong SPV.

-            Payment of dividends to parent company is tax free under the current tax system.

-            Easy to set up SPV and bank accounts.

-            Low maintenance costs of SPV (filing annual return and tax return, preparing audited accounts for tax return filing).

-            Hong Kong does not practice foreign currency control.

-            The CEPA arrangement between Hong Kong and PRC allows for possible benefits in entry into the PRC market.

The intent of this entry today was to introduce the new policies about incentives for IP and how to manage your IP asset through an HK SPV. The use of IP rights in China is of basic importance and to develop an IP portfolio has become a priority especially for businesses developing new products.

Cristiano Rizzi

Published by admin on May 21st, 2013 tagged China News


One Response to “IP Portfolio in China: Subsidies and incentives and the use of an HK SPV”

  1. bobby Says:

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