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In order to further support the development of small and micro enterprises and individual entrepreneurs, China has implemented additional preferential income tax policies specifically tailored for such investors with the implementation period of these new policies from January 1st, 2021 to December 31st, 2022.
For the annual taxable income of small and micro enterprises not exceeding RMB 1 million, the authorities have announced that the taxable income can be reduced by half from 25% to 12.5%, and the corporate income tax (CIT) is set at a rate of 20%. Thus, with the newest policy in place the effective CIT rate for these enterprises will be 2.5% (=12.5% x 20%).
For small and micro enterprises whose annual taxable income amount exceeds RMB 1 million but is less than RMB 3 million, a CIT rate of 20% shall be applied on 50% of their taxable income amount. Therefore, the effective CIT rate is levied at 10% (=50% x 20%).
Additionally, if the annual taxable income of individual entrepreneurs does not exceed RMB 1 million, on the basis of the existing preferential policies, a 50% reduction in individual income tax (IIT) shall be applied.
It is important to note that the above-mentioned small and profitable enterprises shall be engaged in industries that are not restricted or prohibited by the state and shall also meet the three following conditions: annual taxable income not exceeding RMB 3 million, the number of employees shall not exceed 300, and total assets shall not exceed RMB 50 million.
China continues to support its small businesses in order to facilitate strong economic growth and shield the most vulnerable businesses from any negative effects of the Covid-19 pandemic as well as other global economic disturbances. Since last year, the country has accommodated a number of policies to support its micro, small, and medium enterprises by relaxing certain taxation rules.
At PHC Advisory, our team is constantly monitoring the most recent developments and incentives accessible to businesses in China. Feel free to reach us at info@phcadvisory.com to find out more about preferential policies in China that your company may benefit from.
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