The executive meeting of the State Council held on March 24th decided to continue and optimize some temporary preferential tax policies to further support the development of Small and Micro Enterprises (SME) and individual entrepreneurs.

From January 1st, 2023, to December 31st, 2024, for entities with annual taxable income of that of SMEs, not exceeding RMB 1 million, a Corporate Income Tax (CIT) rate of 20% shall be applied on 25% of said taxable amount. Thus, the effective CIT rate will be 5% (=25% x 20%). Additionally, if the annual taxable income of individual entrepreneurs does not exceed RMB 1 million, based on the existing preferential policies, a 50% reduction in Individual Income tax (IIT) shall be applied.

It is important to note that the above-mentioned Small and Micro Enterprises shall be engaged in industries that are not restricted or prohibited by the state and shall also meet the 3 following conditions: annual taxable income not exceeding RMB 3 million, the number of employees shall not exceed 300, and total assets value shall not exceed RMB 50 million.

When an enterprise establishes a branch office without a legal personality, it shall count the number of employees, total assets, and annual taxable income of the head office with that of ones of its branches, and then determine whether it meets the conditions of a SME.

If the corporate income tax paid in advance during the previous period of the current year is not eligible for SME status, it can be deducted from the corporate income tax payable in the following quarter.

If an enterprise enjoys the above preferential policy when filing Corporate Income Tax monthly or quarterly but during the annual CIT filing finds out that the requirements of the relevant policy have not been met, it shall pay the CIT back in accordance with the regulations.

If an enterprise that pays CIT in advance on a monthly basis meets the conditions of Small and Micro Enterprises accordingly when making a monthly CIT filing in April, July, or October of the current year, it will be adjusted to a quarterly CIT filing from the next CIT filing period, and once adjusted, it will not be changed within the current year.

At PHC Advisory, we can offer your business in China full support on relevant tax matters, or any other issues your business may face in China. If you would like to know more about the procedures of Corporate Income Tax Return Filing, please contact us at info@phcadvisory.com.