Unlocking Tax Relief for Global Entrepreneurs: Navigating Key Incentives for Small-Scale Enterprises in China

ExpertinChina
Jul 30
3 min read

Navigating the world of taxes can feel overwhelming, especially for small businesses. However, in China, there are various tax relief options designed for global entrepreneurs looking to thrive in this dynamic market. Grasping these incentives is key to launching and expanding a business in China. This guide seeks to clarify essential tax relief measures available to small-scale enterprises and how to make the most of them.

Understanding the Small Business Tax Incentives in China

China acknowledges that small and medium-sized enterprises (SMEs) are essential for economic growth and innovation. To support these businesses, the government has implemented a range of tax incentives. These policies span three main areas: Value-Added Tax (VAT), Corporate Income Tax (CIT), and Employment Security Contributions for Persons with Disabilities. Here's a concise overview of how small and micro enterprises can benefit.

The VAT Exemption for Small-Scale Enterprises

According to the new policy, "small-micro enterprises" refer to small-scale taxpayers with monthly sales not exceeding RMB 150,000 or quarterly sales not exceeding RMB 450,000. If a business meets this threshold, VAT is fully exempted, meaning up to RMB 1.8 million in annual revenue can be tax-free.

If the threshold is exceeded, a reduced VAT rate of 1% (previously 3%) applies—still significantly lower than the 6% rate for general taxpayers. This favorable VAT policy has been extended until the end of 2027.

Corporate Income Tax Reduction in Detail

Beyond VAT exemptions, the China corporate income tax reduction offers another valuable path for small-scale enterprises. This tax reduction targets sectors vital to national growth, including high-tech and innovation-driven companies.

To qualify as a “small-micro profit enterprise” under the CIT framework, a company must meet all four of the following conditions:

Operates in industries not listed as restricted or prohibited by the government;
Employs 300 or fewer people;
Has total assets not exceeding RMB 50 million;
Has annual taxable income of up to RMB 3 million, which is further segmented:

(1) Income ≤ RMB 1 million

Previously: 25% of income taxed at 20% CIT rate.
Now: Only 12.5% of income is subject to the 20% CIT rate, effectively halving the tax burden.

(2) Income between RMB 1 million and 3 million

50% of income in this range is taxed at the 20% CIT rate.

Employment Security Contributions for Persons with Disabilities

One appealing but often overlooked incentive is the employment security exemption in China. This measure encourages small businesses to preserve jobs during challenging economic times by minimizing social security contribution obligations.

By taking advantage of this exemption, small-scale firms can save a significant amount on labor costs. For instance, a company maintaining ten employees could save approximately 150,000 RMB annually, allowing for better cash flow during downturns.

Under Article 4 of the Ministry of Finance’s latest announcement, enterprises with 30 or fewer employees are temporarily exempt from paying employment security contributions for persons with disabilities. This exemption applies regardless of a company’s industry, size, revenue, or tax status.

Additionally, for businesses exceeding 30 employees, proportional reductions apply:

If the employment of disabled persons reaches ≥1% of total staff but is below the government-mandated quota (usually 1.5%), the contribution is reduced by 50%.
If the employment ratio is <1%, companies are required to pay 90% of the standard contribution.

These tax and fee relief measures are designed to ease the financial burden on small businesses, promote inclusive employment, and encourage sustainable economic growth in China. Small and micro enterprises are strongly encouraged to assess their eligibility and take full advantage of these benefits.

How Gomax Can Help

At Gomax International, we specialize in helping international and domestic businesses navigate the complex Chinese tax and regulatory landscape. Whether you're a small startup or an expanding enterprise, our team provides end-to-end support including: