Preferential Tax Policy for Small-Scale and Low-Profit Enterprises to Continue

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Feb. 16 – China announced that it will continue encouraging small enterprises with low profits by carrying on the favorable tax treatment towards them.

On January 27, 2011, the Ministry of Finance and the State Administration of Taxation jointly issued the “Circular on the Continuous Implementation of the Preferential Policy on the Corporate Income Tax of Small-Scale and Low-Profit Enterprises (Caishui [2011] No. 4).” According to the Circular, between January 1, 2011 and December 31, 2011, small-scale and low-profit enterprises with a taxable income of less than RMB30,000 (inclusive) shall deduct its income by half as the basis for taxable income calculation, and pay their corporate income taxes at a rate of 20 percent. The Circular also stipulates that small and low-profit enterprises refer to those enterprises qualified under the Corporate Income Tax Law of the People’s Republic of China and its implementing rules and related tax policies.

The development of small and medium-sized enterprises (SMEs) contributes over 60 percent to China’s total GDP growth and is turning into a major drive of the country’s economic advancement. In order to solve the capital shortage problem that resides in most SMEs, China took a series of measures over the past five years such as establishing special support funds, reducing corporate income tax and value-added tax rates, clearing some administrative fees, and allowing special social security policies in some enterprises.

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