China’s government is continuously decreasing taxes and burdens on companies in China, aiming to infuse energy to the market, promote employment and boost up economy as a whole. Among these decreases, business leaders and accountants should understand how your value-added tax (VAT), individual income tax (IIT), and corporate income tax (CIT) have been changing.
Value-added tax (VAT) rates have been simplified and decreased a few times during the past several years. Following the proposal from the annual National Representative Conference in early March, in 2019, the new VAT rates would be further decreased to 13% from 16% for manufacturing companies, 9% from 10% for transportation and architecture industries. For the service companies taxed at 6% VAT rate, there would be more eligible deductions.
For small-scale VAT payers, if the monthly income is not more than RMB 100 thousand, the VAT is exempted. Furthermore, during the period from January 1, 2019 to December 31, 2021, surcharges and stamp duties are halved.
Individual income tax (IIT) burden are decreasing as well by applying lower rates and higher deductions. Since January 1, 2019, annual method and six special deductions applied to the IIT computation. Special monthly deductions for local Chinese individuals comprise RMB 1,000 per child allowance, RMB 1,000 or 2,000 parent allowance, RMB 1,000 continuous education allowance, RMB 1,500 (RMB 1,100 or RMB 800) for apartment rental allowance, RMB 1,000 for mortgage loan allowance, and annual RMB 60,000 for serious medical expenses.
Corporate income tax (CIT) rate for small and thin profit enterprises are reduced to 5% and 10% for the part of annual taxable profit not more than RMB 1 million and part between RMB 1 million and RMB 3 million, respectively.
These changes are ongoing, bringing a lot of benefits and challenges as well to businesses. Top management should be aware of these rapid changes and strive to take good advantage of those updates to operate your business legally, safely and wisely.