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On 19 May 2020, the State Taxation Administration issued the Announcement No. 10 of 2020, regarding the postponement of enterprise income tax (EIT) payments for micro-small enterprises and individual businesses.
According to this announcement, from 1 May 2020 to 31 December 2020, micro-small enterprises may postpone EIT payments for current period to the first declaration period of 2021 and pay the postponed 2020 EIT along with the EIT payable of the first declaration period of 2021 (estimated in the middle of January 2021), after completing the pre-payment declarations in accordance with regulations for remaining declaration period of 2020.
Taxpayers who are eligible to postpone EIT payments and have completed actual payments during the period from 1 May 2020 to the issue date of this announcement (i.e. 19 May 2020) may apply for a refund and complete the settlement during the first EIT filing period of 2021 (i.e. in middle the January 2021).
How to define the micro-small enterprises?
Following the requirements illustrated in Announcement No. 2 of 2019 issued by State Taxation Administration on 18 January 2019, micro-small enterprises mentioned in the Announcement No. 10 of 2020 refer to those entities which are engaged in non-restricted and non-prohibited industries of the PRC and simultaneously meet all three requirements below:
- Annual taxable income shall not exceed 3 million RMB;
- Number of employees shall not exceed 300 persons (including those employees who have established labour relationships with enterprises and those being dispatched);
- Total assets shall not exceed 50 million RMB.
Other tax benefits dedicated to micro-small enterprises in China
According to Announcement No. 2 of 2019, starting from 1 January 2019, maximum limitation of annual taxable income of micro-small enterprises has been raised from 1 million RMB to 3 million RMB.
The portion of taxable income not exceeding 1 million RMB will be taxed at 5% while the tax rate is 10% for the portion of taxable income more than 1 million but not exceeding 3 million RMB.
Here is an example to illustrate how enterprises can benefit from this tax benefit:
| Year | Taxable income | Portion | Tax rate | Income tax | |
| 2018 | 2.1 million RMB | 2,100,000 | 25% | 525,000 | |
| 2019 | 2.5 million RMB | 1,000,000 | 5% | 50,000 | 200,000 |
| 1,500,000 | 10% | 150,000 | |||
With this beneficial tax treatment, although taxable income in 2019 increases, the overall enterprise income tax payable would be less than the one paid in 2018.
Implementation of postponing EIT payments
Step 1:
Regularly complete quarterly EIT declarations (no need to pay until January 2021) in the remaining declaration period of 2020 (i.e. July and October 2020) and fill in relevant lines in the declaration forms.
Step 2:
Settle all postponed EIT payments declared in the remaining declaration period of 2020 during the first declaration period of 2021 (estimated in the middle of January 2021), as well as the regular payment for the last quarter of 2020.
If any EIT already paid between 1 May and 19 May 2020 had been refunded as per the issuance of Announcement No. 10 of 2020, the amount refunded shall be settled together with the rest of EIT payable in the first EIT declaration period of 2021 in the middle of January 2021.
Relieving tax burden
Micro-small enterprises in China can now enjoy a series of fiscal benefits to overcome the difficulties in the current uncertain economic environment by easing the financial pressure on their operations and cash flow.
The implementation of these measures aims at effectively stimulating market vitality and accelerating economic recovery by relieving smaller enterprises currently facing cash flow related issues from further tax burden.
In the current period of economic uncertainty, it is essential for entrepreneurs and managers to keep track of all tax benefits being offered by China authorities. Let a professional team handle your tax related issues in order to assess the current status of your enterprise and evaluate which tax benefits your company is eligible for.
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