China Low-Profit Enterprise 5% Tax Until 2027
Recently, the Ministry of Finance (MOF) and the State Taxation Administration (STA) have released the Announcement on Relevant Tax and Fee Policies for Further Supporting the Development of Micro and Small Enterprises and Individual Businesses, the Announcement on Relevant Tax Policies Supporting Financing for Micro and Small Enterprises, and several other announcements (collectively the "Announcements"). These announcements provide clarity on the extension and optimization of multiple preferential tax policies.
According to the Announcements, the value-added tax (VAT) reduction and exemption policy for small-scale taxpayers will be extended until December 31, 2027, aiming to support the development of micro and small enterprises and individual businesses. Specifically, from January 1, 2023, to December 31, 2027, the portion of the annual taxable income of individual businesses not exceeding CNY 2 million will be subject a 50 per cent reduction in individual income tax (IIT). Additionally small-scale VAT taxpayers, small and low-profit enterprises, and individual businesses will benefit from a 50 per cent reduction in resource tax (water resource tax exclusive), urban maintenance and construction tax, property tax, urban land use tax, stamp duty (stamp duty on securities transactions exclusive), farmland occupation tax, educational surcharges, and local education surcharges. Moreover, small and low-profit enterprises will have their taxable income calculated at a reduced rate of 25 per cent, and the enterprise income tax (EIT) will be levied at a tax rate of 20 per cent, and this policy will be extended until December 31, 2027.
In practice we can consider a special effective tax rate of 5 per cent for small and low-profit enterprises with an annual income up to CNY 3 million.