Recently, the Ministry of Finance (MOF) and the State Taxation Administration (STA) have jointly issued the announcement on “Preferential income tax policies for micro and small enterprises with thin profit and individually-owned businesses”, MOF and STA Announcement [2023] No. 6, and STA also issued announcement on “Issues relating to the implementation of corporate income tax incentives for micro and small enterprises with thin profit”, STA Announcement [2023] No.6 (the announcements).
According to the announcements, during the period from 1 January 2023 to 31 December 2024, for a micro and small enterprise with thin profit, the portion of its annual taxable income amount, which does not exceed CNY 1 million, shall be computed at a reduced rate of 25%, and be subject to corporate income tax (CIT) at a tax rate of 20%; for an individually-owned business, the portion of its annual taxable income amount, which does not exceed CNY 1 million, shall be subject to individual income tax at a halved rate based on the prevailing incentive policies.
Besides, the announcements also clarified the scope of micro and small enterprises with thin profit, how enterprises could get entitlement to the preferential policies when they set up branches, and how enterprises can get preferential treatment when they make a prepayment of corporate income taxes on a quarterly basis.
According to the announcements, the effective CIT rate of qualified micro and small enterprises with thin profits has been adjusted to 5% for the tax years of 2023 and 2024. It was 2.5% on the portion of annual taxable income not exceeding CNY 1 million and 5% on the portion of annual taxable income between CNY 1 million and CNY 3 million for the tax year 2022. The overview is listed in the below table for easy reference and comparison.
The effective CIT rate for micro and small enterprises with profit from the year 2022 to 2024:
| Tax year | Annual taxable income amount | Effective CIT rate (with preferential treatment) |
|---|---|---|
| 2022 |
|
|
| 2023 & 2024 |
|
|
Please be informed that the qualification criteria for micro and small enterprises with profit depend on three key conditions, including averaged total assets (not exceeding CNY 50 million), averaged headcount of employees (not exceeding 300) and annual taxable income (not exceeding CNY 3 million) of the enterprise. We recommend that micro and small enterprises properly calculate and report the required data to ensure the enjoyment of the preferential CIT treatment.
Regulation reference
- MOF: Preferential income tax policies for micro and small enterprises with thin profit and individually-owned businesses
- STA: Issues relating to the implementation of individual income tax incentives for individually-owned businesses
- STA: Issues relating to the implementation of corporate income tax incentives for micro and small enterprises with thin profit
- Interpretation on STA’s announcement of “Issues relating to the implementation of corporate income tax incentives for micro and small enterprises with thin profit”
