Firstly, we may distinguish the two concepts of the small scaled and minimal profit enterprises “SSMPE” and the small/miniature enterprises “SME”.
SME is comparative with large and middle sized enterprises. According to the categorization standard of middle and small sized enterprises, issued by Ministry of Industry and Information Technology of the P.R.C, National Statistic Bureau, National Development and Reform Commission and Ministry of Finance on June 2011, based on the indicators of the number of the employees, operating income and total assets, all the middle and small sized enterprises in over 16 industries are categorized into three types which are medium, small and miniature. However, SSMPE is derived from CIT laws and implementation rules, which means the specified enterprises who meet the criteria of CIT regulations. The conditions are not only small, but also minimal profit.
Secondly, we shall understand the criteria which the enterprises should meet so that they can enjoy the preferential CIT policies.
SSMPE is referring to the enterprises which industry is non-restricted and non-prohibited by the government, at the meanwhile, the enterprises shall meet the following three criteria at the same time:
– the annual taxable income does not exceed RMB3 million;
– the No. of employees does not exceed 300, and
– the amount of total assets does not exceed RMB50 million.
In addition, according to Caishui 2019 No.13, the notice regarding the implementation of preferential tax policies to SSMPE (“the Notice”), comparing with previous preferential CIT policies on SSMPE, we would like to draw your attention on the following two points:
– the small scaled and minimal profit enterprise which annual taxable profit does not exceed RMB1 million, can enjoy preferential policy of CIT payment at 20% on 25% of annual taxable profit; the small scaled and minimal profit enterprise which annual taxable profit is above RMB1 million, but does not exceed RMB3 million, can enjoy preferential policy of CIT payment at 20% on 50% of annual taxable profit. Therefore, the actual tax burden is decreased to 5% and 10%, respectively. The effective period for the Notice is from 1 January 2019 to 31 December 2021.
– To widen the range of SSMPE, the annual taxable income is increased from previous RMB1 million to RMB3 million (inclusive); the previous No. of employees for industrial enterprise and other type of enterprise as SSMPE were 100 and 80, respectively, now both increased to 300 (inclusive); the previous amount of total assets for industrial enterprise and other type of enterprise as SSMPE were RMB30 million and RMB10 million, respectively, now both increased to RMB50 million (inclusive). After the adjustment, the total number of SSMPEs covers 95% of total enterprise tax payers, in which the total number of private enterprises covers 98% of SSMPEs.
Besides, considering the impact by Covid-19, SSMPE can postpone to pay CIT for 2020. According to the No.1 of the Notice for SSMPE and the individual business to postpone on the payment of 2020 CIT issued by National Tax Bureau, from 1 May 2020 to 31 December 2020, after properly filing CIT prepayment in the remaining tax filing period of 2020, the actual CIT payment can be postponed to the first tax filing period of 2021.