VAT and Business Tax Threshold Raised to Rmb30,000 for Small Businesses
20 October 2014
From 1 October 2014 until 31 December 2015, the value-added tax (VAT) and business tax threshold will be raised to Rmb30,000 for small and micro enterprises.
The Circular of the Ministry of Finance and the State Administration of Taxation on the VAT and Business Tax Policies for Further Supporting Small and Micro Enterprises (Cai Shui  No. 71) clearly stipulates that from 1 October 2014 until 31 December 2015, small-scale taxpayers for VAT with a monthly sales value of Rmb20,000 to Rmb30,000 shall be exempted from VAT and taxpayers for business tax with a monthly turnover of Rmb20,000 to Rmb30,000 shall be exempted from business tax.
Since Cai Shui  No. 52 already granted tax exemption for monthly sales value and turnover of less than Rmb20,000, implementation of the two documents may be combined. In other words, small-scale taxpayers for VAT with a monthly sales value of Rmb20,000 to Rmb30,000 shall be exempted from VAT and taxpayers for business tax with a monthly turnover of Rmb20,000 to Rmb30,000 shall be exempted from business tax. Taxpayers who engage in businesses subject to both VAT and business tax shall conduct separate accounting for sales value for VAT, and business turnover for business tax, and enjoy the respective tax allowances.
In line with previous practices, the State Administration of Taxation is expected soon to issue a public announcement to clarify questions concerning tax exemptions for taxpayers with quarterly payment periods and quarterly sales value or turnover of less than Rmb90,000 and questions concerning requests by businesses eligible for tax exemptions for the tax authorities to issue special VAT invoices on their behalf. Whether cultural undertaking construction fees should be tax-exempted will be decided by the Ministry of Finance and the State Administration of Taxation.
The present policy has the effect of raising the VAT and business tax threshold from the present level of a monthly sales value of Rmb20,000 to Rmb30,000 and extending the coverage from individually-owned businesses and other individuals to small and micro enterprises.
In other words, whereas in the past only those taxpayers with an annual sales value of less than Rmb240,000 were eligible for VAT and business tax concessions, from now on taxpayers with an annual sales value of less than Rmb360,000 will also benefit from this policy. More small and micro enterprises and individually-owned businesses will benefit.
China has announced a series of fiscal and taxation policies to support the development of small and micro enterprises in recent years. For example, qualified small low-profit enterprises only have to pay enterprise income tax at a reduced rate of 20%; the levy rate for small-scale VAT taxpayers is reduced from 6% and 4% to a unified rate of 3%; and the VAT and business tax threshold for individually-owned businesses and other individuals based on monthly sales value is raised to between Rmb5,000 and Rmb20,000. Most places have chosen the upper limit of Rmb20,000 in their tax collection. Based on the tax threshold policy, small-scale VAT taxpayers and taxpayers for business tax among small and micro enterprises with a monthly sales value of less than Rmb20,000 are temporarily exempted from VAT and business tax; and the scope of low-profit small businesses eligible for enterprise income tax concessions at a reduced rate of 50% is expanded as the threshold is raised from an annual taxable income of not less than Rmb30,000 to not less than Rmb60,000 and later further raised to not less than Rmb100,000.
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