Introduction of the preferential tax policy for small low-profit enterprise


Date:  2017-12-31    Autor:   YAO, Alex

Keyword: the preferential tax policy for Small Low-Profit Enterprise, judging criterion for Small Low-Profit Enterprise

Chinese government put more effort to give Small Low-Profit Enterprises more tax incentives in recent years. The tax burden of Small Low-Profit Enterprises would get effectively reduced if these preferential tax policies could be fairly used in practice, and that would contribute to a better development of those enterprises. So the related definitions and policies will be introduced in the following text:

1.      Small Low-Profit Enterprise

Currently the judging criterion for Small Low-Profit Enterprise according to the latest Chinese tax regulation is as follows:

Tax payer

Yearly taxable
income (CIT)

Number of
employees

Total assets

Industrial enterprise

≤ RMB 500,000.00

≤ 100 employees

≤ RMB 30 Million

Other enterprise

≤ RMB 500,000.00

≤ 80 employees

≤ RMB 10 Million

Notice: The business of the  enterprise must be non-limiting and non-prohibited in China.

The number of employees which is mentioned above should consist of the number of normal employees and the number of outsourcing labor. Number of employees and total assets should be determined on base of the average of quarterly value of the enterprise throughout the whole year and should be calculated as follows:

²  Average of quarterly value =initial value of the quarter + ending value of thequarter/ 2

²  average of quarterly value of whole year = (Sum of the average of quarterly value) / 4

²  For enterprise which starts or terminates its business in middle of a financial yearthe above value should be calculated on base of the actual operating period.

2.      Tax incentives for Small Low-Profit Enterprise

According to the latest Chinese tax regulation, Small Low-Profit Enterprises are mainly allowed to get tax incentives in terms of corporate income tax:

1.     Reduction of tax rate

According to the tax regulation (2017) No.43, for Small Low-Profit Enterprise the tax rate of corporate income tax is reduced from 25% to 20%, and additionally only half of the profit before tax is subject to corporate income tax.

Ø  For example if enterprise A fulfills the judgingcriterion of Small Low-Profit Enterprise, then the corporate income tax which should be declared quarterly will be much lower than before:

Declaration for 1.quarter of 2017

No tax                   incentive before

Use of tax             incentive now

Comparison

Profit before tax

TRMB 200

TRMB 200

Tax rate

25%

25%

10% (20%*50%)

10% (=20%*50%)

Corporate             income tax

TRMB 50

TRMB 20

Decrease of paid  
tax by TRMB 30

Net profit

TRMB 150

TRMB 180

Increase of net
profit by TRMB 30

The above tax incentive really helps reduce taxburden of Small Low-Profit Enterprise significantly.

2.     No need for tax filing

Small Low-Profit Enterprises can use the related tax incentive by the quarterly corporate income tax declaration in practice without any permission from tax authority, but they should provide the information about “number of employees, total assets” etc. on the corporate income tax declaration form and by the annual corporate income tax assessment.Usually there is no need for tax filing extra at tax authority.

3.     Tax incentive for depreciation of fixed assets

According to tax regulation (2014) No.75 and tax regulation (2015) No.106, new fixed asset for research and development and production purpose with unit priceless than RMB 1 Mio. which is purchased by a Small Low-Profit Enterprise from the 6 industries and key industries of the 4 fields is allowed to be booked as cost of the current period and deducted for calculation of taxable income, and it is not necessary any more to depreciate such kind of fixed asset. For those fixed assets with unit price more than RMB 1 Mio., it is allowed to reduce the depreciation period which should not be less than 60% of the specified depreciation period according to Chinese corporate income tax law or use the accelerated depreciation method.

Ø  The 6 industries above are: (1) Bio-medicine production; (2) Special equipment manufacturing; (3) Railway, shipbuilding,aerospace and other transport equipment manufacturing; (4) computers,communications and other electronic equipment manufacturing; (5) Instrument manufacturing; (6) Information transmission, software and information technology services.

Ø  The 4 fields above are: (1) Light industry; (2) Textileindustry; (3) Mechanical industry; (4) Automobile industry. The key industries of the 4 fields are regulated by tax regulation (2015) No.106.

3.      Professional support from Ecovis Ruide China

We can provide your company systematic solution for feasibility and compliance of getting the above tax incentives in terms of professional training, impact analysis, tax planning etc.

·      Professional training
Provide our explanation and interpretation of the latest info & policy for Small Low-Profit Enterprise; guide your employee to prepare the legal documents which are required by Chinese authorities.

·      Impact analysis
We can conduct feasibility analysis to wholly evaluate whether your company matches the condition of the above tax incentives according to your company’s actual business situation, and we can review your company’s quarterly operating budget with help of data model and then give you our professional advice.

Tax planning
We can provide tax planning and implementation proposal for company operation from the perspective of the tax incentives for Small Low-Profit Enterprise.

Annexed table Summary of tax incentives for Small Low-Profit Enterprise

Legal base

Object of  tax incentive

Condition  of tax incentive

Tax  category

Content  of tax incentive

Execution  duration

Tax regulation (2017) No.43

Small Low-Profit Enterprise

Yearly taxable income ≤ RMB 500,000.00, number  of employees ≤ 100 and total assets ≤ RMB 30 Mio. for industrial enterprise; Yearly  taxable income ≤ RMB 500,000.00, number of  employees ≤ 80 and total assets ≤ RMB 10 Mio. for other enterprise

Corporate income tax

Tax rate reduced from 25% to 20% and only half of the profit before tax  taxable

2017.1.1~

2019.12.31

Jan.1,2017-Dec.31,2019

Tax regulation (2014) No.75 and tax regulation (2015) No.106

Small Low-Profit Enterprise

New fixed asset for research and development and production purpose with  unit price less than RMB 1 Mio. purchased by Small Low-Profit Enterprises  from the 6 industries and key industries of the 4 fields is allowed to be  booked as cost of the current period; the depreciation period can be reduced  or the accelerated depreciation method can be used for those fixed assets  with unit price more than RMB 1 Mio.

Corporate
income tax

One-time deduction as cost or use of accelerated depreciation

From Jan.1,2014 and Jan.1,2015 on



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