On 1 and 2 August 2023, the Ministry of Finance (MOF) and the State Taxation Administration (STA) issued the Announcement on Relevant Tax and Fee Policies for Further Supporting the Development of Micro and Small Enterprises and Individual Businesses (2023 MOF and STA Joint Announcement No. 12), the Announcement on Relevant Tax Policies Supporting Financing for Micro and Small Enterprises (2023 MOF and STA Joint Announcement No. 13), and several relevant announcements (including 2023 MOF and STA Joint Announcement No. 16, No. 17, No. 18 and No. 19, collectively the Announcements). These Announcements clarified on the extension and optimization of multiple preferential tax policies, by the end of 2027. On 4 August 2023, the STA further issued the Circular on Continuously Introducing and Optimizing the Measures for the Spring Breeze Campaign for Convenient Taxation Services to Promote the Growth of the Private Economy and the High-quality Development, to enhance the better implementation of the newly introduced preferential tax policies.
According to the Announcements, the tax reduction and exemption policy for small-scale taxpayers will be extended to 31 December 2027, aiming to further support the development of micro and small enterprises and individual businesses. Specifically:
1) From 1 January 2023 to 31 December 2027, individual business shall be subject to a 50% reduction in individual income tax for the portion of their annual taxable income not exceeding RMB2 million, and they may enjoy this preferential policy on top of other existing preferential policies on individual income tax.
2) From 1 January 2023 to 31 December 2027, small-scale taxpayers of value-added tax (VAT), small and micro-profit enterprises and individual businesses are levied the following taxes at half the normal rate: resource tax (excluding water resource tax), urban maintenance and construction tax, property tax, urban land-use tax, stamp duty (excluding stamp duty on securities transactions), cultivated land occupancy tax, and surcharges on education fees and local education surcharges.
3) The policy of calculating taxable income at a reduced rate of 25% and paying enterprise income tax (EIT) at a rate of 20% for small micro-profit enterprises is extended until 31 December 2027.
4) By 31 December 2027, financial institutions are exempted from VAT on interest income derived from the granting of small loans to small enterprises, micro-enterprises and individual entrepreneurs, and stamp duty shall be exempted on loan contracts signed between financial institutions and small and micro enterprises.
The Circular issued by the STA further introduces and optimizes 28 tax service and payment facilitation measures and tasks, to help the private economy develop and grow, and promote sustained improvement in economic performance. The notable ones are summarized as following:
1) To further enhance policy implementation, for taxpayers who, for various reasons, did not enjoy the policy of additional deduction for R&D expenses in time during the levy period in July this year, the taxpayers can enjoy the additional deduction in August and September by changing the EIT prepayment declaration for the second quarter (or June).
2) Digitized electronic invoices will be promoted, to facilitate the digital transformation of small and medium-sized enterprises and further reduce their systemic transaction costs.
3) The STA will simplify the statements related to enterprises’ reporting of overseas investment and income information, reduce the frequency of reporting, and further reduce the burden of enterprises in filing.
4) The STA will deepen the use of international tax law tools, such as mutual negotiation procedures of tax treaties and appointment pricing arrangements, to help private enterprises and other taxpayers resolve cross-border tax-related disputes in a more vigorous manner, and to improve tax certainty in cross-border operations.
The introduction of these tax incentives and facilitation measures shows the determination of the Chinese government to help the private economy, which has just survived three years of “severe winter”. These good policies are apparently conducive for Chinese private companies to strengthen their domestic roots as well as expand their foreign investments.