2021 China Tax Update

To cope with the shock caused by increasingly complex international trade environment and effect of COVID-19 has done to businesses, the State Taxation Administration of the People’s Republic of China has developed a range of  preferential tax policies to reduce the burden of businesses and individuals, facilitate the resumption of economic activity, revitalize the market, and accelerate the  economic recovery. In order to help taxpayers fully understand and enjoy the various benefits available in China,  we have summarized the relevant preferential tax policies for your reference.

 

Tax initiatives and the adjusted tax rates in China for 2021.

 

  1.  VAT (Value Added Tax)

 

1.1 Redefining “general taxpayer”:

  • Previous definition of general taxpayer

“General taxpayers” previously referred the following categories:

 

  1. Taxpayers engaged in the production of goods or provision of services, or mainly operate in wholesaling or retailing goods, with an annual sales turnover of more than RMB 500,000;
  2. Taxpayers who are engaged in wholesaling or retailing goods with an annual sales turnover more than RMB 800,000;
  3. Taxpayers whose annual turnover from provision of services amounts to RMB  5,000,000.

 

  • The new definition for general taxpayers from May 1, 2018 is as follows:

According to Document (CS [2018] No.33) issued by the State Taxation Administration, if the annual taxable sales amount is more than RMB5,000,000, the entity is recognized as a general taxpayer, otherwise it is a small-scale taxpayer.

 

 

1.2 Tax rates adjustments:

 

Since April 1, 2019, the following tax rates apply:

 

Type of goods and services

Adjusted tax rates

Original tax rates

Sales or provision of labor services related to processing and repairs, imported products, and tangible movable property leasing services

13%

16%

Daily necessities, cultural publications, agricultural production equipment, (primary) agricultural products, transportation services, postal services, basic telecommunications services, construction services, leasing and sales of real estate and transfer of land usage rights

9%

10%

Financial services, High-tech & IT related services (excluding leasing services), value-added telecommunications services, domestic services, transfer of intangible assets (excluding land use rights)

6%

6%

Export of goods, international transportation services provided by domestic company and individuals, Air Cargo services, and 10 kinds of services provided to overseas for consumption abroad

0%

0%

 

1.3 The current preferential policy for enterprise value-added tax is as follows:

 

From January 1, 2019 to December 31, 2021, small-scale VAT taxpayers with monthly sales of less than RMB 100,000 are exempted from VAT, with the exception of  special VAT invoices issued.

 

 

  1. EIT (Enterprise Income Tax)

 

The enterprise income tax rate remains unchanged at 25%. From January 1, 2019 to December 31, 2021, *SMEs (including small-scale taxpayers and general taxpayers) enjoy the following preferential enterprise income tax rates:

 

  • If the annual taxable income does not exceed RMB 1,000,000, 25% shall be included in the taxable income, and the EIT shall be paid at the rate of 20% (effective rate: 5%);
  • If the annual taxable income exceeds RMB1,000.000 but does not exceed RMB 3,000,000, 50% of the excess portion shall be included in the taxable income, and the EIT shall be paid at the rate of 20% (effective rate: 10%).

 

*SMEs mentioned above refer to companies that meet the conditions that annual taxable income is less than RMB3,000,000, number of employees is less than 300, and total assets are less than RMB50,000,000.

 

 

  1. Customs Duty

 

From January 1, 2021, tax authorities in China will continue to reduce import tariffs on certain commodities. According to the Document [2020] No.33 issued by the Customs Tariff Commission; the provisional import tax rate lower than the MFN rate is adopted for 883 kinds of goods (excluding TRQ goods). The tax rates agreed in bilateral trade agreements between China and New Zealand, Peru, Costa Rica, Switzerland, Iceland, Australia, South Korea, Chile, Georgia, Pakistan, and the Asia Pacific Trade Agreements were further lowered.

 

 

  1. Stamp duty, City Construction Tax and Additional Education Surcharge

 

From January 1, 2019 to December 31, 2021, the preferential policies on stamp duty and city construction tax implemented in China are as follows: in accordance with the Document CS [2019] No.13 issued, the governments of individual provinces, autonomous regions and municipalities directly can reduce the resource tax, city maintenance and construction tax, real estate tax, urban land use tax, stamp duty (excluding securities transaction stamp duty), farmland occupation tax, additional education surtax, and local education surtax up to 50% of the tax amount for small-scale VAT taxpayers based on individual situation of the region.

 

 

  1. IIT (Individual Income Tax)

 

  • Preciously, the Individual Income Tax was assessed on a monthly basis, with the threshold of RMB3,500 per month with tax rates as follows:

 

Individual Income Tax Rate Table (Applicable to Income from Wages and Salaries)

Level

Monthly Taxable Income (RMB)

 Tax Rate (%)

 Quick Deduction (RMB)

1

Less than 1,500

3

0

2

1,500-4,500

10

105

3

4,500-9,000

20

555

4

9,000-35,000

25

1,005

5

35,000-55,000

30

2,755

6

55,000-80,000

35

5,505

7

More than 80,000

45

13,505

 

  • The new calculation standard of individual income tax was implemented from January 1, 2019. It is collected every year on a monthly basis, and a final settlement will be carried out in the following The monthly threshold has adjusted to RMB 5,000, and 6 types of special deduction on individual income tax have been added, including support for parents and children, housing loans, rent, further study, etc., which can be deducted if they meet specific conditions. The updated rates are as follows:

 

Individual Income Tax Rate Table (Applicable to Comprehensive Income)

Level

Annual Taxable Income (RMB)

Tax Rate (%)

Quick Deduction (RMB)

1

Less than 36,000

3

0

2

36,000-144,000

10

2,520

3

144,000-300,000

20

16,920

4

300,000-420,000

25

31,920

5

420,000-660,000

30

52,920

6

660,000-960,000

35

85,920

7

More than 960,000

45

181,920

 

These tax rate adjustments, particularly the preferential  taxation policies, may be adjusted from time to time.                

 

This article serves as an overview of the current taxation and investment policy environment in the PRC. If you have any enquiries regarding taxation in China, please feel free to contact us for a free initial consultation.

 

 

 

 

About the Author:

 

Mr. Philip Yu

Managing Partner

 

Mr. Yu holds a Bachelor of Commerce (Hon.) from the University of Toronto and L.L.B. (Hon.) from the University of London, and is a member of the American Institute of Certified Public Accountants, Certified Public Accountants of Australia and the Hong Kong Institute of Certified Public Accountants. Philip is experienced in handling cross border taxation issues, corporate restructuring and other cross border business solutions. He undertakes additional posts as Company Secretary, Authorized Representative and Independent Non-Executive Director for several listed companies on the Hong Kong Stock Exchange. He joined our firm in 2001 and currently the Managing Partner of the firm.

 

 

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