Biomedical Industry: Latest support policies of Shanghai Pudong

During the “14th Five-Year Plan” period, the Chinese government has promulgated various support policies to encourage innovation by enterprises. The Pudong New Area, Shanghai, issued “Policies and Measures for Promoting High-quality Development of Key Advanced Industries” (PuFuGui [2022] No.5) in August 2022, focusing on industries including Chip, Aviation, Innovative Medicine, Future Vehicles, Smart Manufacturing, Data Port, and Artificial Intelligence. Special rewards will be granted for eligible enterprises and projects to award innovation related achievements. This policy was effective from September 17, 2022 and will be valid till December 31, 2025, with rolling back to the period from January 1, 2021 to September 16, 2022.

As one of the leading industries in Shanghai, the biomedical industry has always been one of the key industries encouraged and supported by Shanghai Pudong New Area government. Under the basic framework of “PuFuGui [2022] No.5", Shanghai Pudong New Area government also published "Detailed Implementation Rules for Supporting High-quality Development of Biomedical Industry in Pudong New Area" on September 22, 2022, which stipulates the detailed incentive available for enterprises’ R&D activities on innovative medicine and medical apparatus.

This policy under the detailed rules for the period from January 1, 2021 to December 31, 2021 shall apply to the qualified biomedical and new material enterprises whose business and tax registrations are in the Pudong New Area, and with valid operation status and record. The main contents of the policies are as follows.

Deloitte's observations and suggestions

For Shanghai and many other provinces and cities, the biomedical industry is one of the key industries that have strategic investing and supporting. The aforementioned industry-specific support policies from the Pudong New Area, Shanghai, highlighting the continued encouragement in innovation of the industry from the Chinese governments at all levels, even under the current challenging economic and fiscal environment. As a high-land hub for biomedical enterprises, it is particularly important for Shanghai to create and maintain an innovation-friendly environment for enterprises.

The above incentive policies not only applies to R&D and breakthroughs in innovative drug and medical apparatus, but also covers CROs, CDMOs and CMOs, which are of great value in the industry supply chain, reflecting the government's plan of integrated development over the supply chain.

Meanwhile, the above incentive policies are direct fund rewards. Enterprises in the industry will inevitably need to consider other incentives and policies such as taxation, tax based financial subsidies, obtaining approval of relevant licenses, access to talents and infrastructure, etc. Enterprises should seek opportunities to negotiate with local governments for maximum support.

It is noteworthy that relevant supporting policies may have certain requirements, e.g. requirements for MAH and R&D activities. In this regard, enterprises should consider whether these requirements are compatible with its overall strategic business plans including IP model planning, to avoid potential tax disadvantages in the longer term.

In fact, with the preferential policies from various local governments and biotech parks, how can enterprises design their value chain allocation and IP model based on those local policies will be an important step in respect of aligning their IP and transfer pricing tax model with their overall business strategies.

We will continue to follow the changes of relevant policies and provide updates. For more inquiries regarding the industry insights and tax advisory in respect of government supporting and IP planning, please feel free to contact us.

Reference

1. Supporting policies

• Several Policies and Measures for Promoting High-quality Development of Key Advantageous Industries in Pudong New Area
• Detailed Implementation Rules for Supporting High-quality Development of Biomedical Industry in Pudong New Area
• Notice on Issuing the Special Application Guide for Promoting the High Quality Development of the Biomedical Industry in Pudong New Area in 2022

2. Deloitte Industry insights

• China's Biotech Parks – Leveraging an eco-system for success