Announcement Express | 2023 Preferential Income Tax Policies for SMEs
China has extended and improved a number of preferential tax policies, according to multiple statements issued by the Ministry of Finance and the Administration of Taxation based on decisions made at a State Council meeting last week.
On 26 March 2023, the Two Administration Departments jointly issued the «Announcement on Preferential Income Tax Policies for Small and Micro Enterprises and Individual Businesses».
The announcement clearly stated that “For low-profit small and micro enterprises, the portion of their annual taxable income that does not exceed CNY 1 million will be calculated as 25 percent of the original amount from 1 January 2023 to 31 December 2024, and the corporate income tax (CIT) payable is calculated at a rate of 20%.” The specific calculation formula is as follows:
CIT Payable = [portion does not exceed CNY 1 million] * 5%
Therefore, according to the calculation, the corporate income tax rate payable for the portion not exceeding CNY 1 million is 5% (=25%*20%).
The announcement emphasizes the criteria for identifying small and micro enterprises. That is, “Enterprises engaged in non-restricted and prohibited industries, and at the same time meet the three conditions of 1) annual taxable income of not exceed CNY 3 million; 2) the number of employees does not exceed 300; 3) total assets of not exceed CNY 50 million”.
The “number of employees” includes the number of employees who have established labor relations with the enterprise and the number of employees accepted by the enterprise for labor dispatch. The above “number of employees” and “total assets” shall be determined by the quarterly average of the enterprise throughout the year. The specific calculation formula is as follows:
Quarterly average = amount (beginning of quarter + end of quarter) ÷ 2
Annual quarterly average = sum of annual quarterly averages ÷ 4
If the business is opened or terminated in the middle of the year, the actual operating period will be used as a tax year to determine the above-mentioned indicators.
We have hereby compared the policies on SMEs in the past years and counted the changes in corporate income tax rates for SMEs for your reference.
|Profit (in CNY)
|Between 1M to 3M
You may refer to each announcement in the references.
The announcement also elaborated on a noteworthy issue: “If an enterprise has branches in other regions, can this branch enjoy the preferential corporate income tax for small and micro enterprises?”
If an enterprise establishes branches without legal personality, the number of employees, total assets, and annual taxable income of the head office and its branches should be calculated in the aggregate, and whether they meet the conditions of small and micro enterprises should be judged based on the total number. In other words, even if the branches meet the conditions of small and micro enterprises, once the aggregate statement shows that they do not meet the requirements, the head office and all branches, are not entitled to the preferential income tax policy for small and micro enterprises.
Moreover, enterprises should be born in mind that the corporate income tax relief given to small and micro enterprises is different from the laddering algorithm given in Europe, America, Hong Kong, etc. In other words, the “laddering algorithm” in mainland China (“阶梯算法” in Chinese) does not apply to the policy for small and micro enterprises once the annual income tax payable exceeds CNY 3 million, and is no longer recognized as a small and micro-enterprise and is void ab initio, and is replaced by a full 25% corporate income tax.
However, these preferential policies introduced by the national authorities are still conducive to further stabilizing the expectations of enterprises and enhancing their confidence.
Should you have any questions, please feel free to contact us.
Notice of the Ministry of Finance and the State Administration of Taxation on Implementing the Inclusive Tax Deduction and Exemption Policies for Micro and Small Enterprises
No. 13  of the Ministry of Finance
Announcement of the Ministry of Finance and the State Taxation Administration on Implementing the Preferential Income Tax Policies for Micro and Small Enterprises and Individual Industrial and Commercial Households
Announcement No. 12  of the Ministry of Finance and the State Taxation Administration
Announcement of the State Taxation Administration on Matters Concerning the Implementation of Preferential Income Tax Policies Supporting the Development of Small Low-Profit Enterprises and Individual Industrial and Commercial Households
Announcement No. 8  of the State Taxation Administration
Announcement of the Ministry of Finance and the State Taxation Administration on Further Implementing the Preferential Income Tax Policies for Micro and Small Enterprises
Announcement No. 13  of the Ministry of Finance and the State Taxation Administration
Announcement of the Ministry of Finance and the State Taxation Administration on the Preferential Income Tax Policies for Micro and Small Enterprises
Announcement No. 6  of the Ministry of Finance and the State Taxation Administration