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Small Profit Enterprises to Defer CIT Payment

Posted by: Zhorea Garcia
Category: Business in Asia, Tax and Regulations
Small Profit Enterprises to Defer CIT Payment

China’s small profit enterprises or commonly referred to as small and micro enterprises (SMEs) make up most of the businesses in the Chinese market. They are considered as the main drivers of the country’s economy with a growth rate of at least 10 percent year-over-year. According to the Statista report, SMEs grew by over 38 million in 2019 whereas Beijing alone has over 3,100 industrial enterprises.

Read our previous article on Technology Enterprise Registration for SMEs in China

The growth of SMEs in China is unstoppable. Therefore, the Chinese government pushes to prioritize tax relief measures and ensure their expansion amid domestic or global challenges. Keep reading.

Deferred payment of corporate income tax

On May 19, 2020, China’s tax administrators announced the policy regarding the postponement of paying for corporate income taxes among low-profit enterprises. Moreover, the said period of deferment from May 1 to December 31, 2020, also applies to self-employed individuals who must pay for individual business income tax.

According to the new policy, the payment of income taxes will apply in the next tax declaration period of 2021. Hence, small and low-profit companies may postpone the payment after the annual IIT return period in 2020.

Meanwhile, enterprises that have already paid for the deferred tax can apply for a refund and pay altogether in 2021.

You may access the English translation of the notice here.

Qualification of small profit enterprises

According to Announcement 10 [2020], the small and low-profit enterprises shall be judged according to the conditions stipulated in Announcement 2 [2019] of the State Taxation Administration.

Inclusive tax policy reduction for SMEs

Inclusive tax policy reduction for small profit enterprises
On the other hand, the low-profit making enterprise must continue to meet the following conditions to fall under the label:

  • Must not belong to non-restricted or prohibited industries in China;
  • Has less than 300 employees;
  • With a total asset worth less than RMB 50 million.

Small taxpayers have also enjoyed other preferential tax policies including:

  • Resource tax
  • Urban maintenance and construction tax
  • Real estate tax
  • Urban land use tax
  • Stamp tax
  • Farmland occupation tax
  • Education fee surcharge
  • Local education fee

According to the 2019 announcement, small-scale VAT taxpayers may reduce the above items within a 50 percent tax rate. Moreover, companies can still enjoy the preferential tax treatment if they later qualify as small profit enterprises and pre-pay their corporate income taxes.

Simplified  procedures for small profit enterprises

Despite incentives granted by the Chinese government, some small businesses may have failed to survive the impact of the pandemic crisis. Hence, they are left with no choice but to close their business. One of the most important steps for closing a business is tax deregistration. Luckily, small businesses do not have to go through a long-winding process. Through simplified procedures, SMEs can take relief from simple steps to deregister for taxes.

6 steps for tax closing

  1. Set up a liquidation committee to prepare the liquidation report including the inventory of assets.
  2. Clear accounts in the company’s balance sheet.
  3. Settle outstanding taxes in the previous years.
  4. Cancel the bank invoice and close the invoice servicing system.
  5. Declare the yearly, monthly, and quarterly value-added tax (VAT), corporate income tax (CIT), and individual income tax (IIT).
  6. Make an appointment with the local tax bureau for cancellation and submit the necessary forms or materials.

Conclusion

According to the latest report of the State Taxation Administration, China has provided a total of RMB 906.6 billion worth of reduced taxes and fees from January to April 2020.  Furthermore, it is noted in the government work report that more tax reductions will be implemented to ease the burden of enterprises by more than RMB 2.5 trillion this year.

The Chinese government continues to draft policy support for the growth of businesses in China especially small profit enterprises. This also includes a mandate for banking and financial institutions to optimize the credit approval process for SMEs. Besides, the government also pushes for expanded loan limits, extended loan terms, and increased credit issuance to first-time borrowers.

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Author: Zhorea Garcia

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