China: latest tax relief measures for SMEs

Published On - 7 avril, 2022

Albert Hui China

China’s central and local governments issued several support measures to ease the financial burdens and stimulate the growth of small businesses. Here is a recap of all the latest major tax incentives policies for small-scale taxpayers and small and low profit enterprises in China.

  1. Value-added tax (VAT)
  • VAT exemption for small-scale taxpayers

The sales revenue of small-scale taxpayers that are generally subject to 3% VAT will now, be VAT exempted for the period 1 April 2022 to 31 December 2022. The VAT exemption is only for the normal VAT invoice issued from 1 April 2022 till 31 December 2022. In other word, if any special VAT invoice issued during this period, the applicable VAT rate is still 3%. It also extends the reduction of VAT rate from 1% to 3% for the taxable sales income of small-scale VAT taxpayers earned before 31 March 2022.

  • Increased VAT threshold

The VAT exemption threshold for small‑scale taxpayers has been extended the period from 1 April 2021 to 31 December 2022, and the VAT-exempted sales has been raised from RMB100,000 (or RMB300,000 per quarter) to RMB150,000 (or RMB450,000 per quarter).

  • VAT credit refunds

China is implementing value-added tax credit refunds on a large scale at total RMB1.5 trillion in 2022. For small & micro enterprises and individual businesses, outstanding VAT credits will be fully refunded in a lump sum by the end of June 2022. Newly added credits will be fully refunded on a monthly basis starting on 1 April 2022. Here, small-scale taxpayers normally refer to taxpayers whose annual VAT taxable sales do not exceed RMB 5 million.

  1. Corporate income tax (CIT)
  • Lower CIT rate for small and low-profit enterprises

The standard China CIT rate for both foreign- and domestic enterprises is currently at 25%. From 1 January 2022 to 31 December 2024, the CIT liability of small and low-profit enterprises has been halved for the portion of taxable profit exceeding 1 million RMB but not exceeding RMB 3million. It means following the new regulation for 3 years, the new effective CIT rate for the portion of taxable profit RMB 1~3 million will be reduced from 10% to only 5%.

The portion of annual taxable income that does not exceeds RMB 1 million of a small and low-profit enterprises will be subject to an effective CIT rate of 2.5% from 1 January 2021 to 31 December 2022.

According to the regulation, to qualify as a small and low-profit enterprises, businesses must satisfy the following criteria:

  1. Company’s annual taxable income is below RMB 3million.
  2. Company’s employee count is below than 300 persons.
  3. Company’s total assets are below RMB 50million.
  • CIT deduction for SMEs purchasing equipment and appliances

From 1 January 2022 to 31 December 2022, newly purchased equipment and appliances (i.e. fixed assets other than housing and buildings) by small and medium enterprises with a unit value of more than 5 million RMB, can be deducted 100% in the current year when computing CIT if the minimum depreciation period is 3 years.

For equipment and appliances with a minimum depreciation period of 4, 5, and 10 years, the amount that can be deducted for CIT purposes is 50% of the unit value in the current year. The remaining value can be deducted according to the remaining depreciation years.

Should you need additional information about these tax relief measures, please do not hesitate to contact our tax experts at contact@orbis-alliance.com.