By Victor Tu
The Clients always ask me if there are any special tax incentives or policy for a small medium-sized companies in China. They have heard a lot of news about Encouraging Small Enterprises to develop in China from newspaper, magazine or radio. Here I’d like to talk about the three types of Small Enterprises most mentioned in media.
Definition 1-Small and Micro Enterprise
This definition is set in accordance with the Standard Separation of Small-medium sized Enterprises from Ministry of Industrial and Information, National Statistics Bureau, Development and Reform Committee and Ministry of Finance.
The purpose of the definition is mainly for Economy and Statistics. The specific rule is set out below from Industry to Industry. Take Manufacturing Industry as an example:
Medium sized Enterprise:
More than 300 employees and Sales more than RMB 20 million
Small sized Enterprise:
More than 20 less than 300 employees and the Sales more than RMB 3 Million
Micro sized Enterprise:
Less than 10 employees or Sales less than RMB 3 Million
Definition 2-Small with Low Profit Enterprise
This definition is set according to the law of Corporate Income Tax released by National People’s Congress.
If a manufacturing company, its annual taxable income is less than RMB 300,000 and employees are less than 100 as well as its total assets less than RMB 30 Million, it will be treated as a Small with Low Profit Enterprise.
And any company other than manufacturer, its annual taxable income is less than RMB 300,000 and employees are less than 80 as well as its total assets less than RMB 10 Million, it will be treated as a Small with Low Profit Enterprise as well.
The benefits of being a Small with Low Profit Enterprise on Tax field is that the company could apply the actual 10% Corporate Income Tax rate compared to a bigger company imposed by 25%.
Note: According to the current rule, 10% is effective until December 31, 2017.
Definition 3-Small Scale VAT Taxpayer
This definition is described in the rule of Value Added Tax Administration released by Council of State.
Whose annual sales is less than RMB 500,000 for a manufacturing company , RMB800,000 for a trading company and RMB 5Million for a service company, they will be treated as a Small Scale VAT taxpayer automatically.
The benefits of being a Small Scale VAT Taxpayer is that if your monthly sales is less than RMB30,000 or quarterly less than RMB90,000, The VAT is Zero.
Note：According to current rule，this policy is effective until December 31, 2017.
To sum up, don’t mix up the different definition of Small Enterprise, hope this article could help you better understand the rule and get benefit for your business.
Keywords: Ningbo accounting, Ningbo Auditor, Ningbo accountants, Ningbo CPA
Victor & Truman，CPAs 宁波纬度会计师事务所（普通合伙）