Administrative Regulation of the People’s Republic of China on the Registration of Market Entities
On 1 March 2022, China enacted the new Administrative Regulation of the People’s Republic of China on the Registration of Market Entities, which is the first unified administrative regulation to regulate all types of market entities in terms of registration and filing matters, registration procedures, and norms, application materials and documents, etc.
Market entities refer to all natural persons, legal persons, and unincorporated organizations that engage in profit-oriented business activities in China, including:
- companies and non-corporate enterprise legal persons and their branches;
- sole proprietorships, partnerships, and their branches;
- specialized farmers’ cooperatives (associations) and their branches;
- individually-owned businesses;
- branches of foreign companies; and
- other market entities as prescribed by laws and administrative regulations.
Final Settlement of Individual Income Tax on Consolidated Income for 2021
On 8 February 2022, China’s State Taxation Administration announced the Matters Relating to the Final Settlement of Individual Income Tax on Consolidated Income for 2021. Resident individuals (“Taxpayers”) are required to consolidate their income from 1 January to 31 December 2021, including wages and salaries, remuneration for labor, remuneration for works, royalties, and other income (“consolidated income”).
Under the following circumstances, the annual final settlement is required:
- the prepaid tax amount exceeds the tax payable amount in the annual final settlement and the taxpayer applies for tax refund; or
- the consolidated income amount derived in a tax year exceeds RMB 120,000 and the amount of tax to be made up exceeds RMB 400.
Under the following circumstances, the annual final settlement is not required:
- the taxpayer is required to pay tax retrospectively in the annual final settlement, but his/her consolidated income does not exceed RMB 120,000 in the year;
- the amount of tax to be paid retrospectively does not exceed RMB 400 in the annual final settlement;
- the prepaid tax amount is consistent with the tax payable amount in the annual final settlement; or
- the taxpayer satisfies the criteria for a tax refund in the annual final settlement but does not apply for a tax refund.
Deferred Payment of Some Taxes and Fees by Micro and Small Enterprises in Manufacturing Industry
China will implement the deferred payment of some taxes and fees for micro and small enterprises (including sole proprietorships, partnerships, and individually owned businesses, the same below) in the manufacturing industry. In particular, eligible enterprises can continue to enjoy deferred payment of some taxes and fees for the fourth quarter of 2021. As for the first quarter and the second quarter of 2022, eligible medium enterprises may defer the payment of 50% of various taxes and fees, and small and micro enterprises in the manufacturing industry may defer the payment of all taxes and fees for six months.
The deferred taxes and fees include the corporate income tax, individual income tax, domestic value-added tax, domestic consumption tax and supplementary urban maintenance and construction tax, education surcharge, and local education surcharge for the periods of January, February, March, April, May, and June of 2022 (paid monthly) or the first quarter and second quarter of 2022 (paid quarterly), but exclude the taxes and fees withheld and remitted, collected and remitted or paid at the time of applying to the tax authorities for issuing invoices on their behalf.
New Preferential Income Tax Policies for Small Enterprises
The Ministry of Finance and the State Taxation Administration released on 18 March 2022 the Announcement on Further Implementation of Income Tax Incentives for Micro and Small Enterprises and Individually-owned Businesses. The Announcement will be retrospectively implemented from 1 January 2022 to 31 December 2024.
For the portion of a low-margin, small enterprise’s taxable revenue that is between RMB 1 million and RMB 3 million, the taxable base will be calculated at 25% of that portion and a 20% income tax rate will also apply.
A low-margin, small enterprise is a company operating in an industry not restricted or forbidden by the state, with annual taxable revenue of no more than RMB 3 million, a staff size of 300 or less and total assets of no more than RMB 50 million.
Further Implementation of “Six Taxes and Two Surcharges” Relief Policy for Micro and Small Enterprises
On 4 March 2022, China announced tax reduction policies further supporting the development of small and micro-sized enterprises. The People’s Governments of provinces, autonomous regions, and municipalities directly under the Central Government may reduce levying of the resource tax, urban maintenance and construction tax, property tax, urban land use tax, stamp duty (excluding stamp duty on securities transactions), arable land use tax and education surcharge, and local education surcharge within the range of 50% tax amount for small-scale VAT payers, small enterprises with meager profit and individually-owned businesses.
Hong Kong: Enhancements to the SME Financing Guarantee Scheme
The Financial Secretary of Hong Kong announced in the 2022-23 Budget on 23 February 2022 that the application period for the 80% Guarantee Product, the 90% Guarantee Product, and the Special 100% Loan Guarantee of the SME Financing Guarantee Scheme (SFGS) will be extended to 30 June 2023.
The maximum loan amount per enterprise under the Special 100% Loan Guarantee will be raised from the total amount of employee wages and rents for 18 months to that for 27 months, subject to a ceiling of HK$9 million (originally HK$6 million), and the maximum repayment period will be extended from eight years to ten years.