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China VAT Threshold Increased to RMB100,000

On 9 January 2019, premier Li Keqiang held executive meeting of the State Council. The executive meeting has made a decision to implement more preferential tax incentive measures applicable to small and micro enterprises. These incentive measures mainly include:

1.   Greatly loosen the criteria of small and micro enterprises eligible for income tax incentives. In the meantime, increase corporate income tax incentives. For small and micro enterprises with annual taxable income not exceeding RMB 1 million, or annual taxable income ranging from RMB1million to RMB 3 million, the taxable income adopted for tax calculation could be reduced to 25% and 50% of the actual taxable income respectively, so that the effective tax rate of corporate income tax could be decreased to 5% and 10% respectively. Over 90% of tax payment enterprises shall enjoy the tax incentives, in which 98% are privately owned enterprise.

2.   For small scale taxpayers, mainly including small and micro enterprises, individual business and other individuals, the levy threshold of VAT shall be raised from the current monthly sales of RMB30,000 to RMB100,000.

3.   Allow the provincial (regional and municipal) governments to reduce no more than 50% of resource tax, urban construction and maintenance tax, stamp duty, urban land use tax, farmland occupation tax and other local tax as well as educational surcharge and local educational surcharge.

4.   Expand the scope of preferential policies for investment in technical type start-ups, so that venture capital enterprises and angel investment individuals investing in such start-ups could enjoy more tax incentives.  

5.   The central government will increase general transfer payments to local governments to make up for the shortfall in local finance caused by tax cuts and fee reductions.

The above mentioned tax incentive measures shall date back to 1 January and are tentatively scheduled for three years. The aforesaid tax incentive measures are expected to relieve the tax burden of small and micro enterprises by around RMB200 billion per year.
 

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