On 11 July 2018, China’s Ministry of Finance (MOF) and the State Administration of Taxation (SAT) together released the “Circular on Further Expanding the Coverage of the Preferential Income Tax Policy for Small Low-profit Enterprises” Cai Shui [2018] No. 77.

Several tax reduction measures were outlined and one of the measures was that starting from 1 January 2018 to 31 December 2020, small and low profit enterprises, whose taxable income in the previous year fell under RMB 1 million (previous upper limit was RMB 500K), will be eligible for preferential Corporate Income Tax policies.

Eligible companies will benefit from paying tax on half of their taxable income at a rate of 20%. For example, if a company earns RMB 800K in taxable income, RMB 400K will be taxed at a 20% rate and the remaining RMB 400K will not be taxed.

There are other qualifying conditions for small low profit enterprises to benefit from these incentives:

  • Number of employees 

– industrial enterprises may not exceed 100 employees
– other type of enterprises may not exceed 80 employees

  • Total assets

– industrial enterprises may not exceed RMB 30 million
– other type of enterprises may not exceed RMB 10 million

The measure reduces the tax burden and cost for small low profit companies, and aims to provide further support to innovation and entrepreneurship.

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