November 2009:

Small-middle Sized Enterprises Enjoy Special Tax Preferences

Since 2009, under the influence of international and domestic factors, Chinese SME’s are facing serious pressure on their development. In order to promote this development, China has given many tax preferences to the SME’s in recent years. In these tax preferences, some of them are the special tax preferences stimulated for different types of SME’s directly or indirectly, the others are general tax preferences, both large-sized entities and SME’s can enjoy them. For SME’s, it is crucial for them to use the above tax preferences effectively

Special tax preferences for SME’s

Small sized and low profit enterprises engaging in the industries which are not limited and forbidden by the State and meeting the following conditions, their income tax will be levied at an income tax rate of 20%. For an industrial enterprise, its annual taxable income must be  below CNY 300,000, number of employees below 100 and value of total assets must be below CNY 30 million; for other enterprises, its annual taxable income must be below CNY 300,000, number of employees below 80 and value of total assets below CNY 10 million.

Value-added tax rate for small-sized taxpayer has been reduced. Based on the temporary regulations of the value-added tax and its detailed rules, the threshold for a small sized taxpayer to become a general taxpayer has been lowered. Originally, if an industrial enterprise wanted to be a general taxpayer, its annual sales should be more than CNY 1 million, now, this amount has been lowered to CNY 500,000; originally, if a commercial enterprise wanted to be a general taxpayer, its annual sales should be more than CNY 1.8 million, now, this amount has been lowered to CNY 800,000. At the same time, the value-added tax rate has been uniformly reduced to 3% from 6% and 4% for both industrial and commercial enterprises respectively.

The standard rate of enterprise’s income tax has been lowered. For the manufacturing industry, their taxable income rate have been adjusted from 7%~20% to 5%~15%; for entertainment industry, from 20%~40% to 15%~30%; for transportation industry, from 7%~20% to 7%~15%; for food & beverage industry, from 10%~25% to 8%~25%. At the same time, the industries of agriculture, forestry, livestock and fisheries have been now included in the income tax regime, and their taxable income rate is 3%~10%.

Indirect tax preferences for SME’s

SME’s’ financing will be supported. Some non-profit credit guarantee and re-guarantee agencies have been established for financing SME’s. For their operating income of credit guarantee and re-guarantee, excluding the income of credit rating, consulting, training, and etc., from the day of the tax exemption granted by tax the authorities, their sales tax will be exempt for a period of three years.

For venture capital investment companies taking equity investments in unlisted high-tech SME’s for more than two years, the venture capital business taxable income can be offset by up to 70% of its investment when it holds the shares up to two years; if the taxable income is not enough to be offset, it can be carried forward to be offset in future years.

For enterprises, institutions, individuals and social groups, if they donated to a technology innovation fund for SME’s through social organizations and state offices of public welfare, 12% of the enterprise’s total amount of annual profit, and 30% of personal taxable income are allowed to be deducted before calculating income tax.

Other tax preferences for SME’s

Technological innovation of enterprises will be supported. High-tech innovation service centres, science and technological parks of universities, software parks, and other technological enterprises, will be exempt from sales tax, property tax and land utilized tax in city and town. For enterprises engaging in technology transfer, technology development, technical consulting and related technology services, their income is exempt from sales tax. For income of technology transfer entities, the amount below CNY 5,000,000 their income tax is exempt from income tax; the amount above CNY 5,000,000 their income tax is reduced by half.

Restructuring property rights will be encouraged. The transfer of land-use and real estate rights during the merger and separation of an enterprise are exempt from sales tax. The acceptance of dividends and risk by investing in real estate or intangible assets is exempt from sales tax.

Employing the disabled will be encouraged. For SME’s with disabled persons (including welfare enterprises, the blind massage agencies, public institutions and other units), once their income can be up to 50% of the income of value-added tax and sales tax by providing the "services" tariff item (excluding the advertising industry) according to the actual placement of the number of disabled persons, the sales tax is reduced. The specific limit of the sales tax reduction per person per year will be 6 times of the minimum wage approved by provincial government, but the maximum cannot exceed CNY 35,000 per person per year.