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.

Difference between software service and technology development service

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:

Item	Software Service	Technology Development Service
Definition	Software service refers to the provision of software development, maintenance and test service.	R&D service, also known as technology development service refers to the research and testing of new technology, new products, new crafts, new materials and systems
VAT Category	Modern Service-Information and Technology Service	Modern Service-Research and Technology Service
VAT Rate	6%
Tax Incentive	NIL	Taxpayers providing technology transfer, technology development and related technical consulting and technical service are exempt from VAT.
Remarks	Taxpayers to enjoy VAT exemption shall arrange VAT exemption filing with competent tax authorities.

VAT Exemption Filing for Technology Development 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.

Warm Reminder

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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