On 9 January 2019, China’s State Administration of Taxation and Ministry of Finance have jointly issued Notice 13/2019 declaring additional tax relief for small businesses and changes for the investment incentive in start-ups approved by the State Council. The key measures are following:
- Small businesses with monthly turnover up to CNY 100,000 will enjoy a VAT exemption;
- Only 25% of taxable income will be subject to tax at a reduced tax rate of 20% for low-profit small businesses with annual taxable income up to CNY 1 million;
- 50% of taxable income will be subject to tax at a reduced tax rate of 20% for small businesses with taxable income between CNY 1 million and CNY 3 million;
- Local governments may provide up to a 50% reduction in local taxes to small-scale businesses, which may be applied in addition to benefits already provided;
- For the 70% deduction incentive for investments in technology start-ups by venture capital enterprises and angel investors,
Small low-profit businesses are defined according to following conditions:
- Annual taxable income not exceeding CNY 3 million;
- Total employees not exceeding 300 (number of employees based on quarterly average); and
- Total assets not exceeding CNY 50 million (asset value based on quarterly average).
The conditions for qualifying start-up are relaxed, including an increase in the maximum number of employees from 200 to 300, and an increase in the maximum total assets and annual sales from CNY 30 million to CNY 50 million.
Notice 13/2019 applies from 1 January 2019 to 31 December 2021. In relation to the investment incentive, the Notice applies for investments made during that period, as well as investments made in the two years prior to 1 January 2019, provided that the required conditions for the incentive are met.
