On Wednesday the 19th April, China’s State Council approved ¥380 billion in tax relief and changes to VAT rates.
This is a move that's as much about political favor ahead of the 19th National Congress as it is bolstering economic growth, but nonetheless, these changes could benefit your business in China.
What are the changes and who do they affect?
1. Changes to Value Added Tax brackets
From July 2017, the 13% tax bracket will be removed, retaining the current 6%, 11% and 17% tiers. Currently, this 13% rate applies to Agricultural Products and Natural resources which will be moved to the 11% category.
2.Preferential tax treatment threshold raised
Currently, businesses with ¥300,000 or less in taxable revenue can be eligible for a reduced Corporate Income tax of 20%*, this will be lifted to ¥500,000.
*Additional criteria for reduced tax preference are, for industrial enterprises, total assets of no more than ¥30 million and less than 100 employees. For other types of business, total assets must not exceed ¥10 million and have less than 80 employees.
In addition, these smaller businesses will be able to deduct 75% of Research & Development costs from taxation, an increase from the current level of 50%. The good news is that these tax breaks will remain in effect until the end of 2019.
These changes will mostly benefit smaller businesses, i.e startups, however some foreign businesses, with a registered Chinese business such as a WFOE (Wholly Foreign Owned Enterprise) and are operating in the affected markets or revenue brackets, could find some welcome relief as they grow and scale their China business.