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In order to enhance the development of Small Business Enterprises, to build a friendly environment and help them to grow, the Ministry of Finance and the State Administration of Taxation issued two documents last year implementing tax incentives for Small Business Enterprises.
This tax advantage may apply on profit generated from the 1st of January 2015. So far, there is no end planned for the mechanism but Chinese tax policy is changing quickly.
Tax Incentive rate:
- EIT rate: 20% (standard is 25%);
- Taxable income: 50% of the income (Vs. 100% of income)
- EIT incentive rate is equivalent to 10% (100 * 50% * 20% = 10)
Prerequisite to enjoy incentive rate:
- For industrial companies:
- Annual income lower than CNY 300 K;
- Number of staff lower than 100 people;
- Total assets value is less than CNY 30 M.
- For other companies:
- Annual income lower than CNY 300 K;
- Number of staff lower than 80 people;
- Total assets value is less than CNY 10 M.
How to Calculate the Number of Staff & Total Assets:
- Quarterly Averages = (Beginning balance of the quarter + Ending balance of the quarter) / 2;
- Yearly Average = (Sum of each of the four quarters average) / 4.
How to apply?
If your company fulfills the requirements detailed above, you can enjoy the EIT preferential rate without any application to the Tax Authorities. While filling in the Annual Tax Return, you will be asked to detail the annual income, the number of staff and the total assets value. Then, you simply need to assess the amount of income tax due for the year by yourself.
Example:
- Taxable income 2015 = CNY 56,000.00
- Total staffs = 12 staffs
- Total assets = CNY 2,800,000.00
==> It matches with prerequisites so:
- Taxable income = CNY 56,000.00 * 50% = CNY 28,000.00
- EIT = CNY 28,000 * 20% = CNY 5,600.00
- Amount of tax saved = CNY 56,000.00 * 25% – CNY 5,600.00 = CNY 8,400.00