China tax: 2021 major incentives

In April, 2021, the State Tax Administration of China and the Ministry of Finance of the People’s Republic of China released a series of tax incentives, policies, and rules that extend some of last year’s COVID-19 tax incentives. These incentives also add new policies to support small businesses and encourage research and development (R&D) activities.

Value-added tax (VAT) incentives

• The monthly sales revenue threshold has been raised to RMB 150,000 for the small taxpayer VAT exemption. This new policy has no expiration date.
• Small taxpayers with monthly sales exceeding RMB 150,000 but annual sales of less than RMB 5 million pay a 1% VAT rate until December 31, 2021. The VAT rate for small taxpayers will revert to 3% on January 1, 2022.

Corporate income tax (CIT) incentives

• The CIT rate for small and low-profit enterprises has been reduced to 2.5% of taxable income not exceeding RMB 1 million (from 5%). A company is considered a small and low-profit enterprise if:
  • Annual taxable income is less than RMB 3 million;
  • Total number of employees is less than 300; and
  • Total assets are less than RMB 50 million.
• The reduced CIT rate is valid through December 31, 2022.

CIT - R&D-related incentives

• Where R&D costs have been capitalized, taxpayers may expense 200% and 175% of the current-year amortization for manufacturing and non-manufacturing enterprises, respectively.   
• When R&D expenditures have been expensed, taxpayers may expense 200% and 175% of the current year’s R&D expense for manufacturing and non-manufacturing enterprises, respectively.
• These policies apply retrospectively to costs incurred starting January 1, 2021. For manufacturing enterprises, the policies never expire. For non-manufacturing enterprises, this incentive is valid through December 31, 2023.

Please contact our China tax team to answer any questions about the updated policies or review options for your organization in China.

Contact:   

• Alex He