China SMEs Receive Tax Relief in 2021

China SMEs Receive Tax Relief in 2021

In 2020, the Chinese government initiated various aid measures and tax relief for companies in order to reduce the negative economic impact of the corona virus epidemic. In 2021, most of the preferential policies have continued, and the State Taxation Administration (STA) has announced further tax relief measures regarding value added tax and corporate income tax to further relieve the burden on small and micro enterprises.

The preferential CIT policies

The State Taxation Administration (STA) announced on STA announcement [2019] No. 13 that China SMEs, small and micro enterprises can enjoy.

an effective rate of 2.5%, that is 12.5 percent of the taxable income for the proportion of
under RMB 1 million, on a 20% tax rate.

  • an effective rate of 2.5%, that is 12.5 percent of the taxable income for the proportion of under RMB 1 million, on a 20% tax rate.
  • an effective rate of 10%, that is 50 percent of the taxable income for amount between RMB 1 million and RMB 3 million, on a 20% tax rate.

Which company is eligible to be a Small and Micro Enterprise?

Small and Micro Enterprises should meet the following criteria while practicing business in the non-restricted areas set by the government.

  • The company’s annual taxable income is under RMB 3 million.
  • The company’s number of total employees is less than 300 people.
  • The company’s total assets is under RMB 50 million.

How to enjoy the lower tax rate?

Firstly, companies can conduct a self-evaluation to determine the tax status, if they are qualified as SMEs, they only need to fill the relevant sections in the CIT return form when making the annual filling of CIT. Companies will also need to keep a proof of business activities, number of employees in the company, and total asset calculation; in case the tax authority wants to check on these records.

Finally Small and micro enterprises in China enjoy access to a simplified tax filing procedure as part of their preferential tax treatment. SMEs can choose to complete the tax filling via online tax filling system, if there is any problem, they can go to the local tax bureau seeking for assistance.

China’s pledge to extend additional support to vulnerable small and micro enterprises will be more targeted in the future, with the broad policies aimed at offsetting the economic impact of the coronavirus likely to be scaled back as conditions improve.

With the central government focus on employment and social stability, recently Premier Li Keqiang announced to continue the broad business tax cuts enacted in the past two years, while extending the duration of several existing temporary support policies and also adopting new plans for structural tax reductions.