China Tax: Preferential CIT rate for small companies
On January 9, 2019 China’s State Council announced further tax cuts and wider implementation of preferential tax policies, in order to support companies and provide additional incentives for small enterprises.
On January 17, 2019 the Ministry of Finance and the State Administration of Taxation have jointly issued the Circular Caishui no. 13 [2019] on "Implementing the Policy on Inclusive Tax Reliefs for Small and Micro Businesses", which introduced a preferential Company Income Tax rate for small and micro companies with a taxable income up to 3 million CNY. In particular:
small scale and low-profit enterprises with taxable income lower than 1 million CNY can enjoy a CIT rate of 20%, that would be applied on 25% of their income, leaving the residual 75% tax-free and leading to an effective rate of 5%;
small scale and low-profit enterprises with taxable income between 1 million CNY to 3 million CNY can enjoy a preferential CIT rate of 20%, that would be applied on 50% of their income, leaving the residual 50% tax-free and leading to an effective rate of 10%.
The above-mentioned small scale and low-profit enterprises refer to companies engaged in non-restricted and non-prohibited industries and meeting all the following conditions:
annual taxable income less or equal to 3 million CNY;
number of employees not exceeding 300; and
total assets not exceeding 50 million CNY.
Moreover, the Circular provides that
small-scale taxpayers with a monthly sales less or equal than 100,000 CNY will be exempted from the payment of VAT;
local authorities may, according to the actual conditions of the area and the needs of macro-economic regulation and control, reduce the resource tax, property tax, urban land use tax, stamp duty, farmland occupation tax, urban maintenance and construction tax, education surcharge, and local education surcharge;
technology-based start-up companies with a number of employees not exceeding 300 and total assets and annual sales not exceeding 50 million CNY can be eligible to apply the preferential policy provided by the Circular Caishui no. 55 [2018], according to which the 70% of the investments made and completed between January 1, 2019 and December 31, 2021 can be deducted from the taxable income.
The provisions of the Circular will be implemented for a period of 3 years, from January 1, 2019 to December 31, 2021 and will grant significant tax benefits for a large number of taxpayers.