On April 19th China approved a US$55.2 billion tax cut for both businesses and individuals, according to this statement by the Chinese State Council. This tax rollback is to encourage consumer spending and to boost growth.
The value-added tax system (VAT) has been simplified and will be reduced from four brackets to three, and the tax rate for certain products including farming equipment and natural gas will be reduced to 11% from the current 13%. Tax breaks are increasing for small and medium-sized businesses with an annual income of 500K RMB or less. The government will also be rolling out incentives to boost research and development and tech companies, and from the first of July, citizens that are procuring their health insurance will be able to deduct 2,400 yuan from their taxable income.
This will be the first tax relief package since the VAT reform in China last year and comes at a time when the economy is forecast to slow down in the second half of this year. Due to the fast changes coming about now, it is recommended that business owners and managers contact an expert for professional guidance, to seize the opportunity and make sure they are in compliance.
Tax Cuts for Small Companies and Technology Firms
The Tax cuts for the companies that fall into the lower profit area has been extended as stated above. Companies with an income of 500K RMB (Roughly $73,000 USD) or lower will qualify for a preferential CIT (corporate income tax) rate of 20% to only 50 percent of their taxable income, which has been increased by 200k RMB from the previous limit of 300,000 RMB.
The pre-tax deduction measures for smaller sized Tech companies have also been increased from 50 to 75 percent for research and development of new products or techniques and anything that classifies as new technology. These tax breaks have been put in place from January 1, 2017, until December 31, 2019.
Tax Breaks for Individuals
Individuals can look forward to an extra 2,400 Renminbi ($350 USD) per person to spend, as this is the amount that will be cut from their commercial health insurance.
On top of that, the State Council have also extended packages that include tax breaks for freshly graduated students looking to start a new company, VAT exemption for interest from income for farmers obtained from microloans, and a 50% cut for logistical companies using commodity warehouse facilities.
What does this mean for Foreigners?
This should be seen as a positive sign for businesses, although the GDP is up higher than expected in the first quarter of 2017, it is likely to slow down when officials try to calm the booming property market. The transition from business tax to VAT makes this relevant to any business operating in China, the 13 percent bracket into 11 percent is especially helpful if your business is currently in the 13% bracket.
For those that aren’t directly affected by the tax cuts, it can still be seen as a good starting point for simplifying the new VAT system. China’s relatively high business fees and taxes can make it difficult for startups and smaller companies in their infancy, but the Chinese government’s new strategy is pointing towards a lot of support for tech companies and startups and has even made certain grants available.
If you are looking for up to date info about incentives at a local level or are looking to start up in China why not get in touch with one of our experts at Hongda? Hongda offer services to take on new clients, to help them maintain high-quality records to comply with Chinese government accounting standards and maintain a high tax rating with the Chinese tax bureau. If you’re a newly registered WFOE or looking to outsource your accounting, Hongda will be able to assist and keep you up to date with taxes in China and all the new information available.
If you have any questions relating to taxes or registering your company in China just leave a comment below, and one of our consultants will get back to you as soon as possible with up to date information.