Small and Micro Businesses Enjoy Tax Breaks in China

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Category: Business in Asia, Tax and Regulations
Small and Micro Businesses Enjoy Tax Breaks in China

In January 2019, China announced preferential tax policies for small and micro-businesses. These new tax-cutting measures enabled businesses to save a total of RMB 200 billion annually.

Have a look at our previous article on Preferential Tax for Lingang New Area Enterprises

Particulars from these policies for small and micro-businesses include:

  • Substantial drops in business income tax rates;
    • Small firms with taxable annual revenues of less than RMB 1 million enjoys a 20 percent CIT rate on 25 percent of their income while the rest of 75 percent is tax-free. Those with RMB 1 million to RMB 3 million taxable annual revenue enjoys a 20 percent CIT rate on 50 percent of their income while half of it is tax-free.
  • A considerable increase in the VAT exemption threshold for small-scale taxpayers;
    • From RMB 30,000 to RMB 100,000 in terms of monthly sales. Businesses with under RMB 300,000 quarterly sales also enjoy VAT exemption.
  • General VAT payers with less than RMB 5 million sales over the last four months had the chance to switch to small-scale VAT payers before the end of 2019.
  • The majority of businesses (95 percent) are qualified for the tax reduction, most of which are private enterprises.

China has also committed to reducing taxes for stars ups and SMEs involved in the high tech and software industry to attract more innovation and development in the field.

Read more about the IC and Software Enterprises to Enjoy Tax Exemptions

The new tax breaks for small and micro-businesses take effect until December 2021.

Two years since then, China has reported reaching the 2020 tax collection target, despite the COVID-19 effect on taxpayers, and the rebates were dispensed in 2020. The total revenue made by the government in 2020 amounted to RMB 13.68 trillion, accounting for 15.2 percent of the country’s GDP. Compared with 2019’s 16.02 percent of GDP, 2020 has a lower tax income-to-GDP ratio. This is good news! This means that by easing the tax burden, China has driven sales revenue growth among companies across the country despite the hardships brought about by COVID-19.

According to Caishui (2019) No. 13 on the implementation of tax reduction and exemption, small and micro-businesses can take advantage of the preferential policies until December 31, 2021.

The manufacturing industry and private sector benefit the most.

Full-year sales revenues of VAT-oriented Chinese enterprises rose by 6 percent, owing to the fact that pandemic control measures were effective, resulting in early restarts of factories, businesses, and other workplaces.

In 2020, the country’s tax and fee reduction plan concentrated on helping entities pull through the difficulties and promote economic recovery. China’s State Taxation administration expects the manufacturing industry and the private sector to benefit the most from the plan. As indicated by the tax bureau, the tax-to-sales revenue rates decreased by 8.8 percent and 9.5 percent, respectively.

Qualifications under small and micro-enterprises

A “small low-profit enterprise” must be engaged in any industry not restricted or prohibited by the state. It should also subsequently meet the following conditions:

  • Its annual taxable amount is not more than RMB 3 million;
  • The number of its employees is not more than 300;
  • Its total assets do not exceed RMB 50 million.

Following the above conditions, small and micro-businesses can apply for the said preferential tax policies.

Conclusion

The increase in companies that qualified to benefit from these favorable policies enabled the small and micro businesses to be the key to a sound economy and stable employment. Furthermore, more areas saw reduced taxes including resources and land use of small companies, while favorable policies for investors in tech startups came at that time as well.

Contact us

S.J. Grand’s tax and accountancy services will keep your business updated with the various policy changes in China every year and what steps to take to remain compliant with the Chinese regulations. Moreover, we have been at the forefront of promoting full automation of business operations, especially for startups and SMEs. We have introduced our Cloud-based advanced solution, Kwikdroid, to make business transactions easier with us, no matter what type or size of the company. Contact us or visit our Kwikdroid page to learn more about the services we offer.

 

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