China's Small Company Tax 2.5%

The Ministry of Finance and the State Administration of Taxation have jointly issued the Announcement No. 12 [2021] “on the Implementation of the preferential income tax policies for small and micro – enterprises and individual industrial and commercial households”, to further support the development of small businesses and to implement the decisions of the State Council.

The Announcement No. 12 slightly amended the previous Announcement No. 13 [2019] issued in January 2019, by further reducing the tax burden for entities with a taxable income not exceeding RMB 1 million.

According to the Announcement No. 13 [2019], small low profit companies with a taxable income up to 3 million CNY, a number of employees not exceeding 300 and total assets not exceeding 50 million CNY are eligible for a reduced tax rate of 20% to be applied on 25% of the income up to 1 million CNY (leading to an actual tax rate of 5% on the first 1 million CNY of profit) and on 50% of the portion of income exceeding 1 million CNY and up to 3 million CNY (leading to an actual tax rate of 10% on this portion).

The new Announcement No. 12 [2021] will halve the tax burden on the part of income not exceeding 1 million CNY, leading to an actual tax rate of 2.5% on this portion.

The new measure will be applicable from January 1st, 2021 to December 31st, 2022.