State media says new inclusive tax cuts launched by the central government that target small and micro-enterprises will reduce the tax burden for 95% of the country’s businesses.
On 18 January the Ministry of Finance (MOF) and the State Administration of Taxation issued the “Notice Concerning the Implementation of a Small and Micro-Enterprise Inclusive Tax Reduction and Exemption Policy” (关于实施小微企业普惠性税收减免政策的通知) for execution during the period from 1 January 2019 and 31 December 2021.
A senior official from MOF’s tax policy department said that new policy paves the way for a 600 billion yuan reduction in taxes for small and micro-enterprises in China over the three year period.
A key focus of the tax cuts is a loosening of qualifying conditions for inclusiveness purposes, with MOF expecting the measures to positively affect 17.98 million enterprises, or over 95% of tax-paying business entities in China, of which 98% are privately run.
Small and micro-enterprises with annual taxable income of less than 1 million yuan and between 1 and 3 million yuan will see their actual tax burden fall to 5% and 10% respectively, with MOF expecting this to translate into a more than 50% drop in the tax burdens of all enterprises with annual taxable income of under 3 million yuan.
The small-scale tax payer value-added tax exemption standard has also been lifted to monthly sales of 100,000 yuan from 30,000 yuan previously.
Another key change is the loosening of conditions for venture capital firms and angel investors to qualify for a 70% deduction in taxable income for investment in tech start-ups.
While start-up tech enterprises were previously defined as those with no more than 200 employees and total assets and annual sales of no more than 30 million yuan, these benchmarks have been increased to 300 employees and 50 million yuan respectively.
The MOF official said that further tax and fee reduction measure would be launched in future, including value-added tax reforms, for the purpose of “strengthening the sense of gain in society, and advancing and forming positive and stable social expectations.”