In order to support the development of small and medium-sized enterprises (SMEs) engaged in the manufacturing sector in China and to mitigate the impact of increasing costs, starting from November 1^st, 2021, upon completing tax declarations in accordance with the law, tax deferrals can be granted to such businesses. In more details, qualified manufacturing medium enterprises can choose to postpone the payment of 50% of their taxes and fees, while small and micro manufacturing enterprises can choose to postpone the full amount of their taxes and fees. The deferral period shall be three months and upon expiration of the deferral period, the taxpayer shall pay the deferred taxes and fees in accordance with the law.

The authorities determine small and medium-sized enterprises as per the following criteria: medium sized manufacturing enterprises refer to manufacturing companies with annual sales of more than RMB 20 million and less than RMB 400 million, and small and micro manufacturing companies refer to those with annual sales of less than RMB 20 million.

Taxes subject to the deferral include corporate income tax, individual income tax (excluding withholding tax), value-added tax, consumption taxes, additional urban maintenance and construction taxes, education surcharges, and local education surcharges. The period of deferral is from October to December 2021 (for monthly tax-filing) or the fourth quarter of 2021 (for quarterly tax-filing).

This policy supports manufacturing SMEs’ cash position through the extension of tax payments, which means that a company has a three-month credit term for tax payables due in December 2021. Therefore, businesses with significant tax payables may reap benefits in terms of lighter cash flow pressure and a temporary availability of additional funds.

The recently implemented policy highlights the authorities’ efforts to assist manufacturing SMEs in the country by providing relief on tax payment terms. If you would like to know more about the most recent financial policies and tax developments in China, please contact us at info@phcadvisory.com.