China Announces Preferential Income Tax Policies for Small Businesses

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BEIJING – On April 8, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) issued an “Announcement on Preferential Income Tax Policies for Small and Low-Profit Enterprises” (CaiShui [2014] No.34, hereinafter referred to as the “Announcement”).

Based on the Announcement, small and low-profit enterprises with a taxable income not exceeding RMB100,000 (US$16,130) should pay corporate income tax at the rate of 20 percent on only 50 percent of their taxable income. The preferential policy is effective from January 1, 2014 to December 31, 2016.

Small and low-profit enterprises refer to enterprises engaged in industries which are not prohibited or restricted by the government and meet the following conditions:

  • For industrial enterprises with annual taxable income not exceeding RMB300,000, total employees not exceeding 100 person, and total assets not exceeding RMB30 million; and
  • Other enterprises with annual taxable income not exceeding RMB300,000, total employees not exceeding 80 person, and total assets not exceeding RMB10 million.

As an important component of China’s national economy, small and micro-sized enterprises contribute to stable employment. Based on a report on the development of small and micro-sized enterprises released by the State Administration for Industry and Commerce (SAIC), by the end of last year, the number of small and micro-sized enterprises had exceeded 11.7 million, accounting for 76.57 percent of China’s total enterprises. These enterprises, however, operate under great pressures, such as heavier tax burdens and higher production costs than large enterprises.

RELATED: Shenzhen Issues FAQs on Tax Exemption Policy for Small and Micro-Sized Enterprises

Additionally, a circular released in 2013 stipulates that certain small-scale VAT taxpayers and BT taxpayers with monthly sales not exceeding RMB20,000 may be temporarily exempted from value-added tax and business tax starting from August 1, 2013. To be eligible for this temporary tax exemption, enterprises should meet the following conditions:

  • A monthly sales amount not exceeding RMB20,000 (US$3,222 inclusive); and
  • A quarterly sales amount not exceeding RMB60,000 (US$9,666 inclusive).

However, according to the 2014 report on the financial development of small and micro-sized enterprises released at the annual conference of the Boao Forum for Asia, only 43.1 percent of the enterprises are eligible for the policies.

Compared with the preferential policies announced in 2013, the new preferential policy on corporate income tax is expected to provide fiscal and taxation support for more small and micro-sized enterprises. The implementation range has been largely increased and the deadline has been extended to the end of 2016.

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2 thoughts on “China Announces Preferential Income Tax Policies for Small Businesses

    Berry Schrijen says:

    Great news! The information in this article seems, at first sight, somewhat contradicting. Where in the 2nd paragraph small and low profit companies are referred to by having a taxable income not higher than 100K RMB, in the 3rd paragraph it mentions an (annual) taxable income of 300K RMB. Please clarify?!

    Nicholas says:

    @Berry: Thanks for the feedback. To clarify, the 300k number is referring to the definition of SMEs in general, whilst the 100k number is referring to SMEs who are eligible for this new policy.

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