ISSUING AUTHORITIES:

State Administration of Taxation

Ministry of Finance

DATE OF ISSUANCE:

March 31, 2021

EFFECTIVE DATE:

March 31, 2021

On March 31st, and in the following days,  the Chinese State Administration of Taxation (SAT) and the Chinese Ministry of Finance announced a number of preferential policies including extensions of some existing policies. Many of these are targeted at particular industries or particular kinds of expenses such as R&D expenses. We detail below two changes that will be of interest to all small companies.

From April 1, 2021 to December 31, 2022, small scale taxpayers with monthly sales of CNY150,000 will be exempt from VAT. Small-scale taxpayers that are not exempt will normally pay a fixed VAT levy rate of 3% with no offsetting (similar to the concept of sales tax used in some countries). This levy rate has now been set at 1%.

In general, small, low-profit enterprises enjoy a preferential CIT rate of 20%. However, under the extended policy where the taxable income is less than RMB 1 million and between RMB 1-3 million, CIT shall be collected at reduced rates. Specifically, if the taxable income is less than RMB 1 million, then the taxable base will be regarded as 25% of the taxable income (i.e., 75% of the taxable income will be tax free) and a preferential CIT rate of 10% shall apply. This renders the effective rate of tax to be 2.5%. Taxable income between RMB 1 million and RMB 3 million will be taxed in a similar way but the effective rate will be 10%.

http://www.chinatax.gov.cn/chinatax/n359/c5162926/content.html