Tax incentives for Small-scale and Low-profit Enterprises are extended to year 2021

Since 1 Jan 2019, small-scale and low-profit enterprises that are not engaged in industries prohibited or restricted by the State and that meet the following conditions:

  • taxable profit for the year shall not exceed RMB 3 million;
  • employees shall not exceed 300;
  • assets shall not exceed RMB 50 million;

can enjoy certain tax incentives (regulatory basis: Caishui [2019] No. 13, or “Circular 13”).

On 7 April 2021, the State Taxation Administration (“STA”) has issued a new notice which further reduced the Corporate Income Tax (CIT) burden for the small-scale and low-profit enterprises during the period from 1 January 2021 to 31 December 2022. According to the tax circular (STA Public Notice [2021] No. 8), the CIT for small scale and low profit enterprises is calculated as follows:

  • For the part of the profit within RMB 1 million: effective CIT rate 2.5% (i.e., 12.5% * 20%);
  • For the exceeding amount (i.e., the profit above RMB 1 million but not higher than 3 million): effective CIT rate of 10% (i.e., 50% * 20%).

In view of the above, the small-scale and low-profit enterprises are subject to CIT at maximum 7.5% during 1 Jan 2021 to 31 Dec 2022. If the qualified enterprise’s total profit does not exceed RMB 1 million per year, the effective CIT burden will be 2.5%.

We advise the smaller enterprises in China to review their financial results and assess whether they are eligible to enjoy the above mentioned tax benefits. In addition to CIT, a enterprises classified as small scale VAT payer are exempted from VAT, provided that the revenue does not exceed RMB 150k per month (valid from 1 April 2021 to 31 December 2022). Kindly note that such VAT exemption does not apply to the enterprises that have obtained the general VAT payers status (i.e., general VAT payers are the type of VAT payers that can claim the input VAT credit against the output VAT).

Please feel free to contact us if you need further information or assistance.