CHINA REVAMPING INCENTIVES TO FOSTER SMALL PROFIT BUSINESSES
In China, small businesses hold the majority among the total number of enterprises in China. Considering the small businesses as one of the driving factors for the Chinese economy, the PRC government has decided to offer them some preferential income tax rates and VAT exemption which is subject to a certain qualifications as discussed in this newsletter. This is expected to ease off their tax burden to a certain extent allowing them to save more cost, thus, make more margin.
I. PREFERENTIAL CORPORATE INCOME TAX POLICIES FOR SMALL BUSINESSES
On April 8, 2014, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) made a joint announcement concerning “preferential income tax policies for small business”, CaiShui  No. 34.
According to the announcement, small and thin profit companies in China with a taxable income up to RMB 100,000 should pay corporate income tax at the rate of 20% on only 50% of the taxable income. The preferential income tax policy became effective on January 01, 2014 and will remain in effect till December 31, 2016.
Small and thin-profit companies refer to companies that are engaged in business activities not restricted or prohibited by the PRC government. The accompanying table details the criteria to be eligible for preferential corporate income tax rates.
Before announcement 34, the company was required to seek approval from the tax bureau in order to benefit from the preferential tax rates; however, after the announcement, the approval is no more necessary. The company should do the self-assessment to determine whether they fit the eligibility criteria and do the filing with the tax bureau.
II. VALUE-ADDED TAX EXEMPTION POLICIES FOR SMALL BUSINESSES
A preferential value-added tax (VAT) exemption policy was announced in 2013 which allows VAT exemption to small scale VAT taxpayer and BT taxpayers. The circular became effective on August 1, 2013.