Preferential Tax Policies for Small Businesses
ISSUING AUTHORITY:
DATE OF ISSUANCE:
March 18, 2022 & March 24 2022
On March 18, 2022, the Ministry of Finance issued Announcement No. 13 [2022] which stated that for the period starting January 1, 2022 and ending on December 31, 2024, a preferential tax policy would apply to small low-profit companies who meet the following 3 criteria: their taxable profit does not exceed CNY3m, they have a total number of employees of less than 300 and their total asset value does not exceed RMB50m.
For such companies, the tax base will be deemed to be 25% of the taxable profit between CNY1m – 3m, and such amount will be taxed at a rate of 20%. This equated to an effective tax rate of 5%.
Under an existing policy the profits up to CNY1m will be deemed to be 12.5% of the total taxable profit and such amount will be taxed at a rate of 20%. This equates to an effective tax rate of 2.5%.
This means that for a company with pre-tax profits of CNY2.5m, the following tax computation will apply :
a. The first CNY1 million will be taxed as CNY1m x 12.5% x 20% = CNY25,000
b. The remaining amount of CNY1.5m will be taxed as CNY1.5m x 25% x 20% = CNY75,000
In summary, therefore, an eligible small low-profit company with a taxable profit of CNY2.5m will face a total corporate income tax bill of just CNY100,000.
Additionally, on March 24 the Ministry of Finance issued Announcement No. 15 [2022] which stated that small firms who would normally be subject to a VAT levy of 3% will be exempted from VAT for the period between April 1 to December 31, 2022.
Reference:
CIT : 关于对增值税小规模纳税人免征增值税的公告
VAT : 关于进一步实施小微企业所得税优惠政策的公告
