Favorable taxation policies accessible to SMEs 

Small and low-profit enterprises can pay their income taxes at the rate of 20%. Small enterprises earning low profits are taxed at 20% provided that they are engaged in the industries not restricted or prohibited by the state, and meet the following conditions:

(1) any industrial enterprise with an annual taxable amount not exceeding RMB 300,000, less than 100 employees and a total asset of no more than RMB 30 million;

(2) any other enterprise with an annual taxable amount of no more than RMB 300,000, no more than 80 employees and total asset not exceeding RMB 10 million.

Small scale taxpayers are eligible for lower value added tax (VAT). The Interim Regulation of the People's Republic of China on Value Added Tax and the Detailed Rules for Implementing the Interim Regulations of the People's Republic of China on Value Added Tax lower the annual sales requirements for small scale taxpayers applying for the general taxpayer status. Required annual sales volume of industrial enterprises is reduced from RMB one million to RMB 500,000 and commercial enterprises, RMB1.8 million to RMB 800,000. In addition, the VAT bearing rate for small scale taxpayers, both industrial and commercial, is lowered from 6% and 4% to 3%.

Verified taxable income rate is further decreased. According to the Measures for Verification Collection of Enterprise Income Tax, taxable income rate applicable to the following industries is further reduced: manufacturing industry, from 7-20% to 5-15%; entertainment industry, from 20-40% to 15-30%; transportation industry, from 7-20% to 7-15%; and food and beverage, from 10-25% to 8-25%. It is also stipulated that a 3-10% rate is applicable to agriculture, forestry, animal husbandry and fishery.

Favorable policies indirectly accessible to SMEs 

Support financing of SMEs. Non-profit credit guarantee and re-guarantee institutions who are listed among national pilots aiming at facilitate financing for SMEs shall, upon completion of tax exemption procedures from tax administrative shall enjoy a three-year exemption of business tax (i.e. revenue from credit guarantee and re-guarantee operations in accordance with relevant regulations of the prefecture-level people's government and revenue from credit rating, consulting and training excluded).

Where a startup investment enterprise invests in an unlisted small or medium new- and high-tech enterprise for two years (24 months) or more in the form of equity investment, a tax credit of 70% of the amount of investment in the small or medium new- and high-tech enterprise can be claimed against the taxable income of the year. When two full years end since it holds shares in the small or medium new- and high-tech enterprise, and, if the tax credit is less than the taxable income, the tax credit can be carried forward to the next tax year.

As for donations by enterprises, public institutions, social groups or individuals via NGOs or government bodies to the Administration Center of Innovation Fund for Small Technology-based Firms, a tax credit of 12% the annual profit will be allowed for enterprises and 30% the amount of taxable income for individuals.

Other incentives for SMEs 

Support technological innovation. Science and technology incubators such as national high & new technology innovation service centers, university science parks, software parks, and overseas students' innovation park recognized by the state or province shall be exempt from business tax, house property tax, and land use tax in cities and towns upon recognition. Revenue from technology transfer, technology development and related consulting and service is free from business tax. Where the enterprise derives income the technology transfer, the first RMB 5 million of the taxable income is exempted from income tax. The amount over the RMB 5 million is subject to income tax at 50% of the full rate.

Encourage reorganization of property rights. No business tax will be applied to transfer of land use right or ownership of fixed assets. SMEs holding shares in the form of fixed assets or intangible assets will be free from business tax.

Promote circular economy. Enterprises shall enjoy a 10% reduction of taxable income, given that the main materials for the products should come from the prescribed resources under the Catalog for the Preferential Tax Treatment on the Integrated Utilization of Resources and that the products should meet the industry standards and not fall under the restricted and prohibited categories. Enterprises engaged in environmental protection, energy and water conservation shall receive tax concession of the first 3 years income tax exemption and the next 3 years taxation at 50% of the normal rate, starting from the tax year in which the first transaction of sales is reported. SMEs developing and producing animations independently where taxable services are incurred will be levied at 3% in terms of business tax (income from advertisements and entertainment deducted). SMEs engaged in agriculture, forestry, animal husbandry, and fishery can enjoy income tax exemptions and reductions according to relevant regulations.

Encourage employment of disabled people. SMEs absorbing the disabled workforce, including welfare enterprises, blind massage institutions, work injury or physical disability rehabilitation stations, where income from services (excluding advertisement service) account for 50% of the combined value of VAT taxable items and business tax taxable items, have access to business tax reduction based on the number of disabled employees. The tax reduction is six times as much as the minimum annual income approved by the provincial people's government with a maximum of RMB 35,000 per person per year.