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on Thursday, 28 June 2018
in Business in China

China to Take 7 Major Measures to Cut Taxes for SMEs and High-Tech Firms

Following China government’s objective to ease business for foreign investors and businesses, new policies will take place in order to alleviate financial pressure on small & medium companies in addition to high-technology firms. It was announced that 7 measures will be applied nationwide starting this year, after a successful test period in eight zones that included Beijing, Shanghai, & Suzhou industrial park. In the long term, such measures are expected to reduce the tax burden of more than 60 billion RMB (equal to 9.4 billion USD) for SMEs and high-tech firms in China.

The 7 Actions Plan

Over the VAT three-tiered rate structure (17%, 11% & 6% rates), the 17% and 11% rates will be decreased to respectively 16% and 10%. The statement did not indicate any changes to the 6% VAT rate. 

1.Raise the per-unit value of newly purchased R&D instruments and equipment that is eligible for a one-time tax deduction from 1 million RMB (157,000 USD) to 5 million RMB (784,000 USD).

2.Raise the annual threshold for an SME to be eligible for preferential corporate income tax from 500,000 RMB (78,500 USD) to 1 million RMB (157,000 USD).

3.Overseas R&D expenses will now be eligible for tax deductions. 

4.Raise the limit of capital loss carryover for high-tech and SME technological firms from 5 to 10 years.

5.Raise the pre-tax deductions of training costs for employees from 2.5 to 8 percent of total employee compensation.

6.Reform of how the stamp tax is applied to book accounts- not only will the accounts that have paid-in capital and reserves be cut in half, but also books with stamp duty on their accounts will now be excluded from those tax acts. (Learn more about the unique feature of stamp tax in Chinese tax code here).

7.Nationwide expansion of tax incentives for venture capital firms and angel investors that will allow for a 70 percent deduction from taxable income of their investment in new or early stage high-tech startups. 

Through these seven major measures, the government aims to further support small & medium companies that are essential for Chinese economy and employment, as it is these types of businesses that provide the most jobs for individuals across the nation. However, SME active in the Chinese market face difficulties when trying to access the affordable financing that is required to innovate. By reducing costs and building favorable tax environment, authorities hope to stimulate innovation and R&D, spur job creation, give incentives to improve employee training programs, and upgrade equipment. 

This is just the first of a few initiatives that have been announced with the goal of creating a better business environment for all. Some of the initiatives we might be seeing in the near future include cutting direct business costs (such as charges for electricity by an average of 10 percent), and stricter regulations regarding interest rates of bank loans to SMEs.



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