New COVID Situation in China: Tax Relief Policies Released to Support Small and Medium-sized Enterprises and Small-scale and Low Profits Enterprises

In the context of the recent rebound of the epidemic situation in China, Chinese government introduced a series of tax relief policies to lighten the burden especially for Small and Medium-sized Enterprises and Small-scale and Low Profits Enterprises. We prepared a summary of these policies which were published in the first quarter of 2022.

  1. Reduced CIT rate for Small-scale and Low Profits Enterprises

According to Announcement [2022] No. 13 of the Ministry of Finance and the State Taxation Administration, from January 1, 2022 to December 31, 2024, the annual taxable income for Small-scale and Low profits Enterprises, which exceeds CNY 1 million but does not exceed CNY 3 million, is further reduced by 50% for CIT.

As stipulated in Cai Shui [2019] No. 13 and Announcement [2021] No. 12 of the Ministry of Finance and the State Administration of Taxation, the existing tax relief policies for Small-scale and Low Profits Enterprises are as follows: if the taxable income does not exceed CNY 1 million, the taxable income is computed at 12.5% of the taxable profit and is subject to CIT rate at 20% (i.e., the effective tax rate is 2.5%). If the taxable income exceeds CNY 1 million but does not exceed CNY 3 million, the taxable income is computed at 50% of the taxable profit and is subject to CIT rate at 20% (i.e., the effective tax rate is 10%).

  1. Policies Relating to Income Tax Deduction for Equipment and Instruments of Small and Medium-sized Enterprises

According to the Announcement [2022] No. 12 of the Ministry of Finance and the State Taxation Administration, for equipment and instruments that are newly purchased by Small and Medium-sized Enterprises during the period from 1 January 2022 to 31 December 2022 with a unit value of CNY 5 million or above, and if the minimum depreciation period is 3 years, i.e. electronic equipment, 100% of the unit value could be deducted on a one-off basis for the current year. For equipment and instruments with a minimum depreciation period of 4, 5 or 10 years, i.e. fixed assets except electronic equipment and buildings, 50% of the unit value could be deducted for the current year, and the remaining 50% could be depreciated in the remaining years pursuant to the provisions for income tax deduction.

This new policy encourages to promote their equipment update and technology upgrade.

  1. Continued Implementation of the Deferred Payment of Certain Taxes and Levies by Small and Medium-sized Enterprises in Manufacturing Industry

According to the Announcement [2021] No. 30 of the State Taxation Administration, Small and Medium-sized manufacturing enterprises could enjoy 3-month deferral for the tax payments of the fourth quarter of 2021.

Medium manufacturing enterprises with an annual sales amount of between (including) CNY 20 million and (excluding) CNY 400 million may defer payment of 50% of the taxes mentioned above for the first two quarters of 2022. Micro and small-sized manufacturing enterprises with an annual sales amount of less than CNY 20 million can defer the payment of all taxes mentioned above for the first two quarters of 2022.

  1. Further Implementation of “Six Taxes and Two Surcharges” Relief Policy for Micro and Small Enterprises

From January 1, 2022 to December 31, 2024, small-scale VAT payers, Small-scale and Low Profits enterprises and individually-owned businesses enjoy a reduction of Six Taxes and Two Surcharges within the range of 50%, which includes resource tax, urban maintenance and construction tax, property tax, urban land use tax, stamp duty (excluding stamp duty on securities transactions), arable land use tax, education surcharge and local education surcharge. The specific tax reduction rate is determined by the local government.

  1. Further Implementation of VAT Credit Refund Policy for Small-scale and Low Profits Enterprises and Manufacturing Industries

Before April 2019, it is generally not permitted refund any input VAT credit to taxpayers in China except the input VAT credit which is related to the cost of exported goods (please refer to our article “VAT Refund for Export Business in China” dated August 28, 2018). From April 2019, the incremental VAT credit accumulated after the end of March 2019 could be refunded. Excess input VAT accumulated before the March 31, 2019 cannot be refunded under the previous policies.

Incremental VAT credit refund is further increased to manufacturing, scientific research and technical services, ecological and environmental protection, electricity and gas, transportation and other related industries. The existing VAT credit of medium manufacturing enterprises could be refunded in lump sum by 30 June 2022. 

  1. Announcement on Matters Relating to the Exemption of Small-Scale Taxpayers from Value-Added Tax

Based on Announcement [2022] No. 15 of the Ministry of Finance and the State Taxation Administration and Announcement [2022] No. 6 of the State Administration of Taxation, effective from April 1, 2022, during the period from 1 April 2022 to 31 December 2022, which are subject to VAT levy rate at 3% are exempted from VAT. Items that are subject to VAT prepayment at pre-levy rate of 3% are suspended from VAT prepayment.

Unless the taxpayers opt for waiving the benefit of VAT exemption, tax-free invoices for the corresponding sales income shall be issued in accordance with the regulations.

“Small-scale VAT payers” refer to those enterprises whose annual turnover is below CNY 5 million and which do not voluntarily register as general VAT payers. The small-scale VAT payers pay output VAT at 3%, but cannot claim input VAT credits on purchases.

We advise Small and Medium-sized Enterprises or Small-scale and Low Profits Enterprises in China to review their financial results and assess whether they are eligible to enjoy the above mentioned tax benefits.

If you need further information or assistance, please feel free to contact us:

 

Dr. Gerald Neumann

Partner

Email: gerald.neumann@cn.ebnerstolz.com

 

Eloise Yao

Director

Email: eloise.yao@cn.ebnerstolz.com