China has extended or started cutting certain taxes and fees to stimulate the economy by providing some financial support for smaller and micro businesses, and also in some preferential sectors (such as high-tech manufacturing, foreign trade, and medical), who have been particularly affected by the coronavirus pandemic.
These tax cuts aren’t insignificant, in fact they amount to around RMB 550 billion (US$84 billion) in new tax and fee cuts and are set to be in place as long as until 2023 or 2025 in some cases.
They were announced by Vice-Premier Li Keqiang in Beijing’s 2021 two sessions (NPC & CPPCC National Committee annual sessions) that concluded on March 11th 2021.
Some of the measures were already in place (and we wrote about WFOE Tax Relief Policies During Coronavirus before) and have been extended, whereas some are all-new.
Here are some of the tax and fee cuts that may affect you:
- Small-scale VAT taxpayers who usually have a VAT levy rate of 3% will only pay or prepay VAT at the reduced levy rate of 1% - extended to December 31, 2021.
- The monthly sales ceiling of VAT exemption for small-scale taxpayers was raised from RMB 100,000 (approx. US$15,400) to RMB 150,000 (approx. US$23,000), meaning that fewer small businesses reach the threshold providing them with relief - policy effective starting January 1, 2021.
- Some Chinese and foreign R&D centers are able to get a full refund of the VAT charged when purchasing domestically made equipment used for their research - policy extended to December 31, 2023.
- Financial institutions who provide micro loans to the badly affected small & micro enterprises, small-scale farmers, and solely-owned enterprises, will benefit from an exemption of VAT on their interest income. This will help to support them to keep lending to the businesses who are most in need of financial assistance - extended to December 31, 2023.
Individual Income Tax (IIT)
- Healthcare and epidemic workers’ bonuses and temporary subsidies are exempt from IIT.
Corporate Income Tax (CIT)
- Donations of cash or the value of material donations towards the coronavirus effort in China by companies are classed as a deductible before CIT.
- Small enterprises will be supported by a reduction in CIT which will be a boon to many smaller businesses and those that only create modest profits. Eligible businesses are those who post an annual taxable income of RMB 3 million or less, have a maximum of 300 staff, and can’t hold more than RMB 50 million in assets.
CIT will be reduced from 5% to 2.5% on taxable income of RMB 1 million or less - runs until December 31, 2022.
A note on calculating CIT:
CIT on company profits rises in three bands. Many SMEs qualify for the lower two bands:
- CIT on up to RMB 1 million of profit is usually 5%.
- This rises to 10% on profit between RMB 1 & 3 million.
- On profits over RMB 3 million, profit tax rises to 25%.
Pre Tax Deductions
Any business who purchases new equipment and/or instruments that are RMB 5 million or less are allowed to include them as a tax deductible expense in one lump sum during the current tax period, rather than having it depreciate over a number of years - extended until Dec 31, 2023.
Stamp tax on loan contracts between small/micro enterprises & financial institutions started between Jan 1st 2018 to Dec 31st 2020 exempted - extended to December 31, 2023.
For Businesses In The Manufacturing Sector
- The ratio of extra pre-tax deduction for R&D expenses incurred by eligible manufacturing firms has been increased from 75% to 100% - from Mar, 21.
- Advanced manufacturers of non-metallic mineral products, general equipment, special equipment, and computer, communication, and other electronic devices will be refunded the VAT incremental credit balance daily - since Sep, 20.
Fees on supplies, equipment, and medicines for treating COVID-19
- To help support the fight against COVID-19, the government is waiving registration fees for medical instruments and medicines related to treating or combatting this disease being urgently approved through emergency channels - extended until December 31, 2021.
Port Construction Fees
- As part of the drive to spur foreign trade, port construction fees have been removed. Outstanding fees already owed will still need to be paid to the government, however - scrapped from Jan 1 2021.
Civil aviation development fund payments
- Again related to improving the foreign trade sector, the government has cut the payments toward the civil aviation development fund by airline companies by another 20%, making the total reduction of 70% over the payments made before the pandemic measures were introduced around a year or so ago in 2020 - reduction in force from Apr 1 2021.
What’s next for your business?
These various tax and fee cuts may be reversed in future, either as the economic situation in China improves or when the time limit on the individual benefit expires.
The cuts may be bad news for local council funding in China, but are mainly aimed at small businesses who employ a lot of the workforce cumulatively, as one of the key aims at the 2 sessions was to reduce unemployment in the coming years, hence the support for them.
As you read, these benefits are not only for domestic Chinese companies, and so if you have a WFOE in China, for instance, you may be eligible.
But are you? Our accounting team can help you claim the tax and fee cuts.
Ensure your financial practices are compliant with Chinese regulations by downloading our free Ebook on China accounting.