Small Businesses Benefit from Reduced Tax Rates

China’s State Taxation Administration has once again brought relief to small businesses in the country with the newly implemented corporate income tax breaks.

Have a look at our previous article on Small and Micro Businesses Enjoy Tax Breaks in China

According to STA’s Announcement No. 8 on April 2, 2021, small and low-profit enterprises including sole proprietors or self-employed businesses can enjoy a further reduction of their CIT liability. Moreover, the Chinese government also extended several support policies for both individuals and businesses during the COVID-19 epidemic.

Duration of the preferential tax policy for small businesses

To support more development for small and micro enterprises, STA announced a reduction of the CIT rate by half. Previously, small, and low-profit companies enjoyed a reduced 20 percent CIT rate for 25 percent of their income. The new preferential policy extends the tax cut to half of their income (12.5 percent) for those that have an annual taxable income of less than RMB 1 million.

The above preferential policy is effective from January 1, 2021, to December 31, 2022. Hence, small businesses including self-employed businesses can save taxes for two years since January.

New policy for small-scale taxpayers

From April 1, 2021, China’s STA announced the implementation of VAT exemption for small-scale taxpayers with monthly sales of RMB 150,000 or less. Similarly, those with quarterly sales of RMB 450,000 or less can enjoy the tax exemption. This policy is effective until further notice.

Read more about VAT Payers in China: Small vs. General Taxpayers

Small scale taxpayers can choose to pay VAT either monthly or quarterly and once decided, it will remain unchanged within one fiscal year.

Extended COVID-19 policies for small businesses

During the COVID-19 outbreak, the Chinese government released several preferential policies intended to ease the income tax burden of both individuals and businesses. Recently, the STA announced the extension of policy concerning the reduced levy rate for small-scale taxpayers at 1 percent.

Read more about the previous policy here: Small Taxpayers to Enjoy VAT Incentives until December

Furthermore, tax reduction or exemption policies concerning the following areas are also extended:

  • Donation of enterprises related to COVID-19
  • Production of materials and delivery of services
  • Individual Income Tax (IIT) of medical personnel or staff

Read more: Policies Concerning Tax Payments amid COVID-19

Applying for tax refund

Small businesses that were eligible for the CIT reduction since January 2021 can apply for a tax refund during the annual tax return period. However, in doing so, individuals and businesses need to keep in mind the nuances of tax refund application to tax authorities which normally involves complicated steps and other considerations.

Contact us

S.J. Grand provides advisory and support on tax and accountancy services for foreign-invested companies in China including income tax filing, VAT refund, and income tax declaration for foreign employees or businesses. We also assist foreign companies on tax optimization strategies to take advantage of China’s various preferential policies. Contact us to get you started.

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