The Ministry of Finance of China, together with the State Administration of Taxation (STA), announced the extension of several tax incentives to support small businesses. Benefits extended until the end of 2027.
The concessional tax policy is being extended to stimulate the economy after the severe restrictions of the COVID-19 pandemic.
Due to weak domestic demand and rising unemployment, China’s economic recovery is slower than expected. The Chinese authorities have taken measures aimed at supporting small businesses.
What benefits are provided by the Chinese government?
Reduced corporate income tax (CIT) rates
All types of small businesses in China can enjoy a reduced CIT rate of 20% combined with a reduction in their tax base. The standard income tax rate is 25%.
VAT exemption for small taxpayers
Value Added Tax Relief is available to small taxpayer companies. That is, whose annual sales volume subject to VAT does not exceed 5 million yuan.
A range of incentives for small businesses
Previously, in accordance with Announcement No. 10, small taxpayers, small and low-profit enterprises, as well as individual entrepreneurs, could receive a reduction in several taxes and fees up to 50% of the tax amount until December 31, 2024. According to the latest announcements by regulators, the rate of reduction of these taxes for small businesses should be set at 50%, and not within 50%. This preferential tax policy will be valid for three years longer.
Benefits for PE
Previously, sole proprietorships could receive a 50% reduction in the amount of individual income tax (IIT) payable for the portion of taxable income not exceeding RMB 1 million until the end of 2024. Now, according to Announcement #12, this amount has been increased to 2 million yuan. The benefit will be valid until December 31, 2027.