According to incomplete statistics from the Economic Observer, over 4300 companies were excluded from the list of high-tech enterprises in the just passed year of 2025.

In December 2025 alone, more than 800 high-tech enterprises, including listed companies, were disqualified in more than ten provinces and cities such as Jiangxi Province, Beijing, Qingdao City, and Sichuan Province.

The main reason why so many companies have been disqualified as high-tech enterprises is that the proportion of research and development expenses does not meet the standard. In October 2025, Hunan Province announced that 80 enterprises had their qualifications as high-tech enterprises revoked, of which 61 were due to the non compliant proportion of research and development expenses, and the rest were due to the non compliant proportion of revenue (services) from high-tech products.

Many companies that have been disqualified are listed companies. In December 2025, the Department of Science and Technology of Guangdong Province, the Department of Finance of Guangdong Province, the State Administration of Taxation, and the Guangdong Provincial Taxation Bureau jointly issued a notice on revoking the high-tech enterprise qualifications of 45 enterprises including Guangzhou Degu Personal Care Products Co., Ltd., which includes listed companies such as Red Cotton Co., Ltd. (000523. SZ) and Kuaiyi Elevator (002774. SZ).

High tech enterprises refer to enterprises that continuously conduct research and development and transform technological achievements in the high-tech fields supported by the state, form core independent intellectual property rights, and carry out business activities based on this. The evaluation of high-tech enterprises requires the enterprise to meet certain requirements in terms of the proportion of research and development expenses and the number of patents. Enterprises that have obtained high-tech qualifications can enjoy preferential policies in various aspects such as taxation.

According to the China Torch Statistical Yearbook, the number of high-tech enterprises surged at a rate of over 30% from 2016 to 2018; From 2020 to 2024, high-tech enterprises also grew by 83%, exceeding 500000. But in 2024, high-tech enterprises will only grow by 1.9% compared to 2023, the lowest growth rate in nearly 15 years.

At the same time as the growth rate slows down, the management of qualifications for high-tech enterprises is becoming increasingly strict. According to incomplete statistics from the Economic Observer, the number of national high-tech enterprise qualifications cancelled from 2022 to 2024 will be 706, 1758, and 3935, respectively. By 2025, over 4300 enterprises will have their high-tech enterprise qualifications cancelled.

This situation will continue in 2026. On January 7th, the website for the management of high-tech enterprise certification showed that Henan Province announced two batches of enterprises whose high-tech enterprise qualifications were cancelled, involving more than 1000 enterprises.

An expert in the field of finance and taxation told the Economic Observer that many local governments are promoting the application of high-tech enterprise qualifications by enterprises within their jurisdiction, and have also set relevant reward and subsidy fund standards for this purpose, which gives enterprises greater motivation to apply for qualifications. There are also a large number of intermediary agencies in the market to help enterprises apply. Some enterprises, in order to obtain the qualification of high-tech enterprises and enjoy tax benefits, will "make a set of accounts" according to the required indicators for application. But in the past two years, more and more enterprises have had their qualifications as high-tech enterprises revoked. This is not only a requirement for regulating the qualifications of high-tech enterprises, but also an inherent demand for regulating tax incentives and building a unified large market.

Cancel the qualification of high-tech enterprises

The financial director of a company has been busy dealing with the cancellation of its high-tech enterprise qualification recently. In 2025, the company he works for has just been disqualified from being a high-tech enterprise, and for him, the first thing he faces is to pay taxes.

According to the Management Measures for the Recognition of High tech Enterprises, after an enterprise is disqualified, the tax authorities will recover the tax benefits it has enjoyed since the year it does not meet the conditions, pay the tax at the statutory tax rate of 25%, and charge a late fee of 0.05% per day.

The financial manager told the Economic Observer that when applying for high-tech enterprises, they need to submit data from the previous three years for review. For example, for the 2021 application, data from 2019 to 2021 is required as the basis. If the application is successful, you will be able to enjoy corresponding preferential policies for the next three years. The qualification of high-tech enterprises needs to be reviewed every three years, mainly led by the science and technology department, with the participation of the tax department. Essentially, it is to verify whether the various indicators of the first three years have been met.

The financial manager said that there are opinions online that many of the problems with the qualifications of high-tech enterprises in this round are due to unqualified products, but this is not the case. Most of the disqualified enterprises are related to financial data. The enterprise fails to meet the relevant mandatory indicators, such as the requirement that the revenue from technology products should account for more than 70% of the total revenue of the enterprise, and the proportion of research and development expenses to sales revenue should not be less than 3%.

The core basis for the current qualification recognition of high-tech enterprises comes from the Enterprise Income Tax Law of the People's Republic of China and the Management Measures for the Recognition of High tech Enterprises.

One of the regulations is that in the past three accounting years, the proportion of R&D expenses to sales revenue shall meet the standards according to scale - enterprises with sales revenue less than 50 million yuan shall not be less than 5%, enterprises with sales revenue between 50 million yuan and 200 million yuan shall not be less than 4%, enterprises with sales revenue greater than 200 million yuan shall not be less than 3%, and the proportion of domestic R&D expenses shall not be less than 60%. The revised draft for 2025 proposes to increase the proportion of R&D expenses for small and medium-sized enterprises to 7%, and explicitly prohibit the inclusion of non R&D expenses such as water and electricity costs in production workshops and depreciation of ordinary equipment in R&D expenditures.

The financial manager said that their company was kicked out of the high-tech enterprise qualification because the percentage of research and development expenses to revenue did not meet the standard. He said that in the previous year, the company suddenly received an additional income, which led to a significant increase in revenue that year. The proportion of research and development expenses and technology product revenue decreased, which was also the main reason why the research and development expenses did not meet the standards.

The financial manager said that the tax bureau may find that the company's income data matches the requirements of high-tech qualifications, so they will provide the data to the technology department. The technology department conducted a review based on this and confirmed that the company does not meet the requirements. In addition, the triennial review does not only rely on tax data, but also includes many indicators in the assessment. For example, the Science and Technology Bureau will assess technological achievements (number of patents, especially invention patents), technical scores, and economic scores.

Behind The Delisting

In the second half of 2025, more and more enterprises will be disqualified from high-tech enterprises.

Ye Yongqing, a partner at Anli Law Firm, told Economic Observer that the concentrated withdrawal of thousands of companies this time is mainly due to the combined effect of policy orientation adjustment, regulatory technology upgrading, and the company's own shortcomings. From the publicly announced lists in various regions, the main reasons for delisting are the inadequate proportion of research and development expenses, insufficient proportion of high-tech income, and compliance management loopholes.

The financial manager mentioned above believes that the proportion of research and development expenses to sales revenue is the most likely indicator to encounter problems.

On January 19, 2025, China Rare Earth announced that its holding subsidiary Zhongxi (Hunan) received a "Notice of Tax Matters" issued by the Second Taxation Branch of Jianghua Yao Autonomous County Taxation Bureau of the State Administration of Taxation. According to the Announcement on Cancelling the High tech Enterprise Qualifications of Six Enterprises including Yongzhou Xiangjiang Rare Earth Co., Ltd., Zhongxi (Hunan) has been disqualified as a high-tech enterprise due to the non compliant proportion of research and development expenses.

In order to make up for the insufficient R&D expenses, many companies have started to include other non R&D expenses in their R&D expenses to meet the 3% expenditure requirement.

A tax official said that many companies will add other expenses to their R&D expenses due to insufficient proportion. For example, personnel funding is one of the main sources of research and development expenses, and some companies will include non R&D personnel salaries in it to meet the requirement of R&D expenditure proportion. If personnel expenses are seriously high, it will attract the attention of the tax department

Ye Yongqing's clients also encountered the same problem. He said that a high-tech enterprise in the electronics industry used to invest tens of millions of yuan in research and development every year, and based on the annual sales revenue at that time, the proportion met the standard requirements for high-tech enterprises. However, as the company's sales revenue grows to several billion yuan, although research and development expenses are also increasing, the proportion of R&D investment to revenue is difficult to meet the requirement of 3%. For a large enterprise, a 3% R&D expense ratio is a high requirement

In Ye Yongqing's view, there are three main reasons why some high-tech enterprises have been disqualified in recent years.

Firstly, against the backdrop of increasingly strict tax administration, this is a concentrated outbreak of benign elimination brought about by the continuous improvement of standards. Among them, a considerable number of enterprises were originally qualified for high-tech conditions, but after years of development, their technological updates have not reached the standard and are still hovering at the original level. Under the previous law enforcement rules, from the perspective of promoting technological development, local governments still tended to maintain the original recognition until the strict requirements of tax management exposed them and they had to be eliminated.

Secondly, in recent years, tax collection and management have become more powerful, and the frequency of "looking back" has increased. This has also led to many companies that could have evaded higher compliance requirements surfacing. This is also the main reason for the rejection and adjustment of high-tech qualification backtesting in recent years, essentially returning old compliance accounts.

Finally, it cannot be ruled out that among these denied high-tech enterprises, there are a few that have historically met the criteria or should still meet the criteria now, but have flaws in their own tax compliance management.

The impact of delisting

At present, China has a relatively large group of high-tech enterprises. On September 18, 2025, Minister of Science and Technology Yin Hejun stated at a press conference of the State Council Information Office that by 2024, there will be over 500000 high-tech enterprises, an increase of 83% compared to 2020.

In order to encourage enterprises to increase their R&D investment, the central and local levels have given many preferential treatment to high-tech enterprises. Ye Yongqing said that being recognized as a high-tech enterprise means that the enterprise and the industry in which it operates are under the guidance of national encouragement and incentives.

In terms of taxation, the corporate income tax has been reduced from 25% to 15%, and the tax burden has been reduced by 40%; Local governments will also provide various preferential conditions for high-tech enterprises, such as Hangzhou Binjiang District rewarding 300000 yuan for newly recognized high-tech enterprises, 100000 yuan for re recognized high-tech enterprises, 100000 yuan for newly recognized high-tech enterprises at the municipal level, and 50000 yuan for re recognized high-tech enterprises. In addition, in various qualification assessments, preferential policies for land talents, and even some bidding processes, the qualification of high-tech enterprises is an important basic condition.

This also means that companies that lose their qualification as high-tech enterprises will face multiple impacts.

In terms of tax incentives, after the cancellation of the qualification of high-tech enterprises, the tax authorities will lawfully recover the tax incentives enjoyed by the above-mentioned enterprises since the year of the cancellation of their high-tech enterprise qualification.

On December 5, 2025, Guangzhou Hongmian Zhihui Science and Technology Innovation Co., Ltd. issued a notice on the cancellation of its high-tech enterprise qualification, stating that after preliminary verification, the company has declared and paid corporate income tax at a rate of 25% since 2021. The cancellation of its high-tech enterprise qualification from 2021 onwards has no impact on the company's business performance, and the specific impact needs to be further verified by the tax authorities.

On December 12th, Kuaiyi Elevator announced that the company needs to make up for the tax incentives and corresponding late fees already enjoyed due to the cancellation of its high-tech enterprise qualification from 2021 to 2023. After a comprehensive self-examination of all tax related matters, the company needs to pay a total of 22.1593 million yuan in taxes and fees, 6.5428 million yuan in late fees, totaling 28.7021 million yuan. As of the disclosure date of this announcement, the company has fully paid the above-mentioned taxes and late fees, and there are no tax administrative penalties involved. The payment of additional taxes and late fees will be included in the current profit and loss for 2025, and is expected to affect the company's net profit of approximately 27.6254 million yuan for the year.

The financial manager mentioned above said that paying taxes is not the biggest challenge, but more importantly, the industry in which the enterprise operates and the enterprise itself will be questioned, such as whether the enterprise's operating conditions are good, whether the industry is still encouraged by the country, and how the product quality is.

Ye Yongqing believes that from the disclosed cases, paying taxes, refunding subsidies, and restricted financing have become the three major pain points for delisted enterprises, and the long-term impact is more likely to continue to drag down the development of enterprises.

He said that losing the qualification of a high-tech enterprise not only means not being able to enjoy tax benefits, but also has impacts in many fields. For example, in terms of financial subsidies and support, many local governments will provide support and subsidies for research and development projects, and the prerequisite for many subsidies is that the enterprise must be a high-tech enterprise; There will also be restrictions in the capital market, such as facing huge difficulties in listing on the Science and Technology Innovation Board and the Growth Enterprise Market; In addition, bank credit, technological support for high-tech enterprises, equipment loans and other preferential policies will also be affected.