The Chinese government is offering a wide range of financial supporting measures against the recent outbreak of COVID-19 across the country. The national authorities have rolled out a series of relief measures, including tax exemptions, tax reductions, lower tax rates, tax refunds and tax credits to ensure a strong umbrella for individual taxpayers, micro and small enterprises, and corporates from certain industries. This article provides an overview of some selected measures which shall support smooth business operations and facilitate economic stability.
Please note that the measures vary from region to region and are changing at a fast-moving pace. While we endeavor to provide the latest and most accurate information, companies should liaise with local partners, government departments or Hawksford regional offices to get the most up-to-date information.
Preferential tax rates for small and micro enterprises
According to the "Announcement on the Further Implementation of Preferential Corporate Income Tax Policies for Micro and Small Enterprises" (CaiShui [2022] No. 13), jointly released by the Ministry of Finance (MoF) and the State Administration of Taxation (SAT) on 14 March 2022, for those enterprises whose annual taxable income is more than CNY 1 million and does not exceed CNY 3 million, their taxable income shall be levied at a reduced rate of 25%, resulting in an actual tax rate of 5% from 1 January 2022 to 31 December 2024.
According to the "Announcement on the Implementation of Preferential Income Tax Policies for Micro and Small Enterprises and Individual Industrial and Commercial Households" (CaiShui [2021] No. 12), jointly released by MoF and SAT on 2 April 2021, thin-profit enterprises, whose annual taxable income does not exceed CNY 1 million shall further enjoy a preferential tax rate at 2.5% until 31 December 2022.
Please refer to the definition of small and micro enterprises in our previous article here.
VAT exemption for small-scale VAT taxpayers
With the release of Announcement [2022] No. 15 on "Exempting Small-scale VAT taxpayers from VAT" on 24 March 2022, the national government aims to provide additional financial support for small-scale VAT (value-added tax) taxpayers, including a reduced VAT levy rate. In particular small-scale VAT taxpayers who were subject to a 3% VAT rate on their taxable income shall be exempted from VAT from 1 April 2022 to 31 December 2022 and the prepayment of VAT shall be suspended.
Small-scale VAT taxpayers refer to enterprises whose accumulated taxable income during a consecutive period of no more than 12 months or four quarters are below CNY 5 million or without a sound accounting system.
According to the previous Announcement [2021] No.11 issued by the MoF and the SAT, only small-scale VAT taxpayers whose monthly taxable income does not exceed CNY 150,000 or quarterly taxable income does not exceed CNY 450,000 were exempted from VAT.
VAT rebate for micro and small enterprises and manufacturing industries
On 21 March 2022, and in order to support the development of small and micro size enterprises and manufacturing industries, the MoF and the SAT issued Announcement [2022] No. 14 on "Further Enhancing the Implementation of the Policy for the Refund of Period-end Uncredited VAT". This announcement shall be effective from 1 April 2022.
These measures extend the range of the implementation of the refund credit VAT from advanced manufacturing to eligible micro and small enterprises and eligible enterprises in the manufacturing and other industries.
The manufacturing and other industries refer to the following six industries:
- Manufacturing
- Scientific research and technical services
- Electricity, heat, gas and water production and supply services
- Software and information technology services
- Ecological protection and environmental governance
- Transportation, storage, and postal services
Eligible taxpayers shall meet all the following requirements:
- It has the tax credit rating of Grade A or B.
- It does not fall within the circumstance of fraudulently obtaining the refund of any excess input tax credit, export tax refund, or falsely issuing a special VAT invoice and not been subject to penalties on two or more occasions in the 36 months prior to the application.
- It has not been punished by a tax authority twice or more due to tax evasion within the 36 months before the application.
- It does not enjoy the policies of "refund upon payment" or "refund after payment" from 1 April 2019.
Eligible enterprises can apply for refunds and incremental VAT credit on a monthly basis. Micro and small enterprises and enterprises in the manufacturing and other industries mentioned in this announcement can apply for the incremental excess input tax credits, starting from the tax filing period in April 2022.
Eligible enterprises can apply for a one-time full refund of the existing excess input tax credits.
| Eligible enterprise type | Starting date of tax filing period of the existing excess input tax credits | Starting date of tax filing period for the incremental excess input tax credits |
| Micro enterprises | April 2022 | April 2022 |
| Small enterprises | May 2022 | April 2022 |
| Medium-sized enterprises in manufacturing and other industries | July 2022 | April 2022 |
| Large enterprises in manufacturing and other industries | October 2022 | April 2022 |
Individual income tax (IIT) special additional deduction for
supporting childcare
According to the Circular Guofa [2022] No. 8 issued by the State Council on 19 March 2022, and the Announcement [2022] No. 7 released by the SAT on 25 March 2022, the expenses of taking care of children under three years old by individual income taxpayers shall be included among the IIT special additional deductions.
In particular:
- IIT taxpayers can deduct the expenses of taking care of children under three years old at a fixed amount of CNY 1,000 per month for each child, from the month of birth to the month before the child turns 3 years old.
- Parents may choose one of the parties to have a full deduction, or they can choose a deduction for both parties at half (50%) of the deduction standard, and the specific deduction method cannot be changed within a tax year. IIT taxpayers can ask their employers to include the deduction in the monthly withholding of the IIT or during the annual IIT reconciliation filing.
- Safeguard measures and other matters related to the special additional deduction of IIT for taking care of children under 3 years old shall be implemented with reference to the relevant provisions of the Interim Measures for Special Additional Deductions for Individual Income Tax Guofa [2018] No. 41.
- The above has been implemented from 1 January 2022.
China's three-child policy officially came into force in May 2021 and the supporting measures were rolled out by municipalities accordingly in the following months. For more information related to childcare policies, please read our previous article here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
