Announcement of the State Taxation Administration on Matters Concerning the Implementation of the Administration of Preferential Enterprise Income Tax Policies for Small Low-Profit Enterprises

To implement the enterprise income tax preferential policy for small and low-profit enterprises, the State Taxation Administration issued the Announcement of the State Taxation Administration on Matters Concerning the Administration of the Implementation of the Enterprise Income Tax Preferential Policy for Small and Low-Profit Enterprises (hereinafter referred to as the "Announcement"). The interpretation is as follows:

I. What is the background for formulating and issuing the Announcement?

To implement the decisions and arrangements of the CPC Central Committee and the State Council, the Ministry of Finance and the State Taxation Administration issued the "Announcement on Income Tax Preferential Policies for Small and Micro Enterprises and Individual Industrial and Commercial Households" (No. 6 of 2023), optimizing the income tax preferential policy for the portion of annual taxable income of small and low-profit enterprises not exceeding 1 million yuan. To ensure the full implementation of the income tax preferential policy for small and low-profit enterprises and support the development of small and micro enterprises, the State Taxation Administration issued the "Announcement" to clarify relevant collection and administration issues.

II. What are small low-profit enterprises in tax policy?

Small low-profit enterprises refer to resident enterprises that meet the regulations of the Ministry of Finance and the State Taxation Administration and can enjoy the corporate income tax incentive policy for small low-profit enterprises. Currently, resident enterprises can enjoy the corporate income tax incentive policy for small low-profit enterprises in accordance with the relevant provisions of the "Announcement of the Ministry of Finance and State Taxation Administration on Further Implementing the Income Tax Incentive Policy for Small and Micro Enterprises" (No. 13 of 2022) and the "Announcement of the Ministry of Finance and State Taxation Administration on Income Tax Incentive Policies for Small and Micro Enterprises and Individual Industrial and Commercial Households" (No. 6 of 2023). If policies are adjusted in the future, the adjusted provisions shall prevail.

III. How does an enterprise apply the small and low-profit enterprise income tax preferential policy when it establishes a branch without legal person status?

The current enterprise income tax implements a legal person tax system, and enterprises should calculate and pay enterprise income tax with the legal person as the main entity. Article 50, Paragraph 2 of the Enterprise Income Tax Law of the People's Republic of China stipulates that a resident enterprise that establishes a business organization without legal person status within China shall calculate and pay enterprise income tax on a consolidated basis. Therefore, if an enterprise establishes a branch without legal person status, it shall first consolidate and calculate the number of employees, total assets, and annual taxable income of the head office and its branches, and then determine whether it meets the conditions for a small low-profit enterprise based on the combined totals of each indicator.

IV. What are the procedures for handling the enterprise income tax preferential policy for small low-profit enterprises?

Eligible small low-profit enterprises can conveniently enjoy preferential policies by filling out the tax filing form, without other procedures. Small low-profit enterprises should accurately fill in basic information such as the number of employees, total assets, and nationally restricted or prohibited industries. After calculating the taxable income, the information system will use relevant data to intelligently prefill preferential items and automatically calculate tax reductions and exemptions for small low-profit enterprises.

V. How can enterprises enjoy preferential policies when prepaying corporate income tax?

First, determine whether conditions are met. When enterprises prepay corporate income tax during the year, if they meet the criteria for small low-profit enterprises according to policy standards, they can enjoy the preference policy. Indicators of total assets, number of employees and annual taxable income are temporarily determined according to the situation as of the end of the period to which the current prepayment filing belongs in the current year. Among them, the total assets and number of employees indicators are calculated according to the "annual quarterly average" formula in the policy standards, calculating the quarterly average as of the end of the period to which the current prepayment filing belongs. Second, calculate the tax payable according to policy provisions. If policies are adjusted in the future, follow those provisions, and the calculation method can be inferred similarly. Examples are as follows:

Example: Enterprise A was established in 2022 and engages in industries not restricted or prohibited by the state. In the first quarter of 2023, the number of employees at the beginning and end of the quarter was 120 and 200 respectively, the total assets at the beginning and end of the first quarter were 20 million yuan and 40 million yuan respectively, and the taxable income for the first quarter was 900,000 yuan.

Parsing: In Q1 2023, Enterprise A's quarterly average "number of employees" was 160, the quarterly average "total assets" was RMB 30 million, and taxable income was RMB 900,000. It meets the criteria for judging small low-profit enterprises when prepaying corporate income tax: engaged in industries not restricted or prohibited by the state, and simultaneously meeting the requirements that as of the end of the period to which the current prepayment filing belongs, the quarterly average total assets does not exceed RMB 50 million, the quarterly average number of employees does not exceed 300, and taxable income does not exceed RMB 3 million, it may enjoy preferential policies.

The Announcement of the Ministry of Finance and the State Taxation Administration on Income Tax Preference Policies for Small and Micro Enterprises and Individual Industrial and Commercial Households (No. 6 of 2023) provides that for small low-profit enterprises, the portion of annual taxable income not exceeding 1 million yuan is included in taxable income at a reduced rate of 25%, and enterprise income tax is paid at a rate of 20%. Therefore, the tax payable by Enterprise A for the first quarter is: 90×25%×20%=4.5 (ten thousand yuan).

VI. Implementation Time of the Announcement

Corporate income tax is calculated by tax year, and the Announcement takes effect on January 1, 2023. The Announcement of the State Taxation Administration on Tax Collection and Administration Issues Concerning Preferential Corporate Income Tax Policies for Small Low-Profit Enterprises (No. 5 of 2022) is repealed at the same time.

To support the development of small and micro enterprises and implement the corporate income tax preferential policy for small and low-profit enterprises, the relevant collection and management issues are hereby announced as follows:

I. Enterprises that meet the conditions for small and low-profit enterprises stipulated by the Ministry of Finance and the State Taxation Administration (hereinafter referred to as small and low-profit enterprises) enjoy the enterprise income tax preferential policies for small and low-profit enterprises in accordance with relevant policies.

If an enterprise establishes a branch without legal person status, it shall calculate on a consolidated basis the number of employees, total assets, and annual taxable income of the head office and each of its branches, and determine whether it meets the conditions for a small low-profit enterprise based on the consolidated figures.

II. Small low-profit enterprises, whether paying enterprise income tax under the audit collection method or the deemed collection method, may enjoy the enterprise income tax preferential policies for small low-profit enterprises.

III. When small and low-profit enterprises prepay and settle enterprise income tax, they can enjoy the small and low-profit enterprise income tax preferential policy by filling out the tax return.

Small low-profit enterprises should accurately fill in basic information, including number of employees, total assets, annual taxable income, state-restricted or prohibited industries, etc. The information system will intelligently pre-fill incentive items and automatically calculate tax reductions and exemptions for small low-profit enterprises.

IV. When small low-profit enterprises prepay enterprise income tax, the indicators of number of employees, total assets, and annual taxable income shall be judged temporarily based on the situation as of the end of the period to which the current prepayment filing belongs.

V. Where an enterprise that originally did not meet the conditions for small low-profit enterprises determines, in accordance with relevant policy standards, that it meets the conditions for small low-profit enterprises when prepaying corporate income tax during the year, it shall calculate the tax reduction and exemption amount based on the cumulative situation as of the end of the period to which the current prepayment filing belongs. If in previous periods of the current year the enterprise overpaid corporate income tax due to not meeting the conditions for small low-profit enterprises, the excess may be offset against the corporate income tax payable in subsequent quarters.

VI. If an enterprise enjoys the small and low-profit enterprise income tax preferential policy when prepaying enterprise income tax, but is found upon annual settlement to not meet the relevant policy standards, it shall pay the enterprise income tax in accordance with regulations.

Seven, small and low-profit enterprises uniformly prepay enterprise income tax on a quarterly basis.

For enterprises that prepay corporate income tax monthly, if during the prepayment filings in April, July and October of the current year they are judged to meet the conditions for small low-profit enterprises according to relevant policy standards, they will be adjusted to quarterly prepayment filing starting from the next prepayment filing period, and once adjusted, no further change will be made within the current year.

Eight, this announcement shall take effect on January 1, 2023. Announcement of the State Taxation Administration on Collection and Administration Issues Concerning the Corporate Income Tax Preferential Policy for Small Low-Profit Enterprises (No. 5 of 2022) is simultaneously repealed.

Hereby announced.

State Taxation Administration

March 27, 2023