When businesses make profits, they are subject to corporate income tax. The standard corporate income tax rate is generally 25%. To support business development, China has introduced several tax incentive policies in recent years.
One of these policies is outlined in Announcement No. 12 of 2023, which specifies that small and micro-profit enterprises are eligible for a reduced corporate income tax rate of 20%, calculated on the basis of a 25% reduction in taxable income, effective until December 31, 2027.
So, what qualifies as a small and micro-profit enterprise? Generally, a business must meet the following criteria:
1. Total assets not exceeding 50 million yuan;
2. Number of employees not exceeding 300;
3. Taxable income not exceeding 3 million yuan.
For example, if a business meets the above criteria and its taxable profit for the third quarter is RMB 500,000 , without the incentive policy, the business would need to prepay RMB 125,000 in income tax for the third quarter.
However, with the tax incentive policy, the prepayment of income tax is reduced to RMB 25,000. The calculation is as follows: Taxable profit = 500,000 25% = 125,000, Income tax payable = RMB 125,000 20% = 25,000