China Offers More Help for SMEs

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Sept. 23 – China’s State Council is offering more assistance to struggling small and medium enterprises (SMEs) by cutting taxes and expanding financing services.

From 2010, companies with an annual taxable income of less than RMB30,000 will only need to pay enterprise income tax on 50 percent of their taxable income and the tax rate on that 50 percent will be 20 percent. Small companies that are not able to pay their taxes on time will also be given a three-month grace period.

“More actively effective measures are needed to help the ailing small and medium enterprises out of the mire of difficulties,” said the State Council statement.

More financing options for SMEs will also be provided by encouraging more private capital to go into rural commercial banks. Small-sum loan companies will be allowed to also transfer into rural commercial companies.

Small businesses are important to the Chinese economy because they provide majority of job creation as well as boost GDP. Due to limited funds, small businesses often turn to banks or loan sharks for financing even at the risk of higher rates although more often than not, banks are reluctant to loan funds to SMEs.

Correction: September 23, 2009
The original article did not mention that SMEs would only need to pay tax on 50 percent of their income.