Chinese authorities have announced new tax incentives for chip design and software firms in an effort to support the development of the domestic industry amid escalating trade tension with the US.

The companies in integrated circuit design and software industries will be exempt from paying income taxes in the first two years if they become profitable before the end of 2018, according to a joint statement by the Ministry of Finance and the State Taxation Administration.

They are also allowed to pay half of the 25% income tax in the third to fifth years.

Such tax relief was only available to firms that reported a profit by the end of 2017.

The move came after the US government raised tariffs on US$200 billion worth of Chinese imports to 25% from 10% and effectively banned US companies from doing business with Chinese technology giant Huawei.