February 2019 - Tax Relief for Small and Micro Enterprises

Mazars Newsletter - February 2019
On January 17th, 2019, the Ministry of Finance and the State Administration of Taxation (SAT) issued the Notice of Comprehensive Tax Relief for Small and Micro Enterprises (Cai Shui [2019] No.13). The new policy will be valid from January 1st , 2019 to December 31st, 2021.
This new policy will help entrepreneurs to start their business in China with lower tax liabilities.

Main changes in the new policy are as follows:

Tax incentives for small-scale value added tax (VAT) payers

Compared to the prior regulation, the small-scale VAT taxpayer whose monthly sales is less than CNY100,000 (inclusive) rather than CNY 30,000 shall be exempted from VAT. Please note that service fees received by individuals in the amount of CNY 100,000 or less are not within the scope of exemption.

The small-scale VAT taxpayer may enjoy at most 50% of tax deduction on resource tax, urban maintenance and construction tax, property tax, urban land use tax, stamp duty (excluding stock trading stamp duty), cultivated land occupation tax, education surcharge and local education surcharge. People’s governments at provincial level may decide the level of exemption up to 50%. Shanghai municipal government has decided that 50% exemption will be allowed.

The criteria of the small and micro enterprises have been loosen

If the Company meets the following criteria, the Company can enjoy lower enterprise income tax rate as a Small and Micro Enterprise(“SME”).

Criteria:

	Before	After
Employees	No more than 100 persons for industrial enterprises and no more than 80 persons for other enterprises	No more than 300 persons
Annual taxable income	No more than CNY 1 million	No more than CNY 3 million
Total assets	No more than CNY 30 million for industial enterprises and no more than CNY 10 million for other enterprises	No more than CNY 50 million

New tax rate and calculation method :

The new regulation introduces the excess progressive calculation method to release tax burden on SMEs.

Taxable Income	Tax rate
Portion of Less than CNY 1 million	5% (20% preferential corporate income tax * 25% actual taxable income)
Portion of More than CNY 1 million but less than 3 million	10% (20% preferential corporate income tax * 50% actual taxable income)

Preferential policy for venture capital enterprises and angel investors

Criteria:

	Before	After
Employees	No more than 200 persons	No more than 300 persons
Annual sales revenue	No more than CNY 30 million	No more than CNY 50 million
Total assets	No more than CNY 30 million	No more than CNY 50 million

Venture capital enterprises and angel investors in scientific and technological startups, which meet the criteria above, may adopt 70% of their investment amount to set off against their taxable income after they have fulfilled a 2-year holding period.