Stephanie Liu
In March 2023, the annual "Two Sessions" meetings of the Chinese government concluded. This year’s meetings were particularly significant as new leaders were confirmed and key economic priorities were set out to achieve a 5% GDP growth target for the year.
After the "Two Sessions" meetings, the Ministry of Human Resources and Social Security (MOHRSS), the Ministry of Finance (MOF), and the State Tax Administration (STA) have released a few preferential tax policies to support the economic development and business restoration in China. According to the news conference, these extended preferential tax policies are expected to reduce the burden of business enterprises by more than 480 billion yuan per year. We summarized a few key ones in this article.
- Reduced Enterprise Income Tax Rate (EIT rate) for Small-Scale and Low-Profit Enterprises and Sole Traders
According to the latest Announcement No. 6 issued by MOF and STA, a concessional 20% EIT rate will be applied on only 25% of the annual taxable income (ATI) if the taxpayers are small-scale and low-profit enterprises with an ATI of no more than RMB 3 million.
To qualify for this concession, small-scale and low-profit enterprises shall engage in non-restricted and non-forbidden industries, and also meet the following conditions:
- annual taxable income ≤ RMB 3m
- total number of employees ≤ 300
- total assets ≤ RMB 50m
In STA’s Announcement No. 5, a further 50% reduction of the tax payable amount will be applied to sole traders for the part of their ATI that is no more than RMB 1 million.
Both announcements are effective from January 1, 2023 to December 31, 2024.
Table 1: 2023 Enterprise Income Tax Rates
|
Enterprises |
Income Tax Rates (ITR) |
Deductions |
|
Small-scale and low profit enterprises |
5%^ - ATI ≤ RMB 3m ^5%=20%x25% |
N/A |
|
Normal enterprises |
25% |
N/A |
|
High-technology enterprises |
15% |
N/A |
|
Sole traders
|
5% - ATI ≤ RMB 30K |
0 |
|
10% - RMB 30K< ATI ≤ RMB 90K |
RMB 1500 |
|
|
20% - RMB 90K< ATI ≤ RMB 300K |
RMB 10500 |
|
|
30% - RMB 300K< ATI ≤ RMB 500K |
RMB 40500 |
|
|
35% - ATI > RMB 500K |
RMB 65500 |
|
|
If ATI is ≤ RMB 1m, Reduced Tax Payable amount = [(ATI x ITR – Deduction) – Other Deductions] x (1-50%) If ATI is > RMB 1m, Reduced Tax Payable amount = [(ATI x ITR – Deduction) – Other Deductions x RMB 1m/ATI] x (1-50%) |
|
- Tax Deduction Policy for R&D Expenses
According to the MOF and STA’s Announcement No.7, enterprises are now allowed to deduct an additional 100% of the actual expenses incurred for R&D against their ATI. Apart from that, if the expenses qualify for intangible assets, the cost of these assets can be amortized at a rate of 200% over their useful lives.
The announcement takes effect on January 1, 2023 with no expiration date. Enterprises are required to follow relevant regulations and management requirements outlined in previous announcements, such as CaiShui [2015] No. 119, 2017 Announcement No. 40, and CaiShui [2018] No. 64.
It is expected to encourage more businesses to invest in R&D and support China's efforts to become a leading innovator in various sectors.
- Concessional Employment Security Funds for Disabled Employees
The MOF has confirmed in its No. 7 Announcement to continue with the previous policy of reducing employment security funds for hiring persons with disabilities from January 1, 2023 to December 31, 2027. Furthermore, enterprises with less than 30 employees shall continue to be exempt from the employment security funds for disabled employees.
Table 2: Employment Security Funds for Disabled Employees
|
% of Disabled Employees |
Employment Security Fund |
|
1% or more of the total employees but still not meeting local government standards |
50% |
|
Less than 1% of the total employees |
90% |
- Premium Reduction for Unemployment Insurance and Work-related Injury Insurance
In order to further reduce the burden on enterprises, enhance their vitality and promote stable employment, the MOHRSS, the MOF, and the STA issued Renshebufa [2023] No. 19 notice to continue with the policy of gradually reducing unemployment insurance premiums to 1% and extend the implementation period to the end of 2024. According to the No. 19 notice, within each administrative area, the employer’s contribution rate shall be the same as the individual contribution rate. The individual contribution rate shall not exceed the employer’s contribution rate.
The No.19 notice also confirmed to keep implementing of the premium reduction policy of work-related injury insurance in accordance with Guobanfa [2019] No. 13.
Both policies will be effective from May 1, 2023 until December 31, 2024.
In addition to the above preferential tax policies, the STA has launched 5 rapid actions to support taxpayers in China:
- Close cooperation with the MOF in formulating and issuing announcements on relevant tax policies
- Quick refinement of the policy scope through instant Q&A conference
- Immediate upgrade of the tax collection and administration information system
- Simplification of the tax processing system to allow taxpayers to enjoy benefits "without leaving home"
- Pushing preferential tax policies to taxpayers through the electronic tax bureau
XLNC TFG Newsflash| April 2023