Brief on tax preferential policies for the first half year of 2023

Published on 2023-08-14

Preface

For the purpose of relieving the financial problem and stabilizing the business development, the tax authority has issued a series of tax relief and fee deduction policies during the first half year of 2023. These policies show the characteristics of continuity of tax preferential policy, targeting the stress of small scale enterprises and system building of certain favor policies. In this article, we will brief key points of these preferential policies.

  1. Value added tax (“VAT”)
  • For small scale tax payers, from 1 January 2023 to 31 December 2023, VAT is exempted where the monthly taxable sales amount is lower than RMB100 thousand inclusively. And from 1 January 2023 to 31 December 2023, VAT rate for taxable income which is applicable for tax rate of 3%, is reduced to 1%.
  • For VAT general tax payers, from 1 January 2023 to 31 December 2023, tax payers of production service industries can deduct additionally 5% of input VAT in VAT payment calculation and tax payers of living service industries can deduct additionally 10%.
  1. Individual income tax (“IIT”)
    • For resident individuals, from 1 January 2023 to 31 December 2023, IIT on the gains from stock incentives such as stock option, restricted stocks, stock compensation which meet the conditions in tax regulations can be separately calculated, instead of being included in consolidated IIT tax return for IIT calculation.
    • For mainland individual investors, from 1 January 2023 to 31 December 2023, IIT is exempted for the gains from transfer of stocks listed in the Stock Exchange of Hong Kong through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, and transfer of shares of Hong Kong Fund through mutual recognition of funds.
  1. Corporate income tax(“CIT”)
  • For small scale and low profit enterprises, during the period from 1 January 2023 to 31 December 2024, taxable income for the income which is below 1 million is reduced to 25% of the income and CIT rate is reduced to 20%. And from 1 January 2022 to 31 December 2024, the taxable income for the income which is above 1 million and below 3 million is reduced to 25% of the income and CIT rate is reduced to 20%.
  • For all enterprises except for industries of tobacco manufacturing, accommodation and catering, wholesale and retail, property, leasing and commerce business, entertainment, etc., R&D expense which is charged in income statement and not capitalized as intangible assets, 100% expense can be additionally deducted before CIT from 1 January 2023. For the expense which is capitalized as intangible assets, the amortization calculated with 200% of capitalized cost can be deducted before CIT from 1 January 2023.
  1. Disabled employment security fund
    • From 1 January 2023 to 31 December 2027, for enterprises, of which, the number of employees is blow or equal to 30 inclusively, the disabled employment security fund is exempted.
    • From 1 January 2023 to 31 December 2027, where the proportion of disabled person to total number of employee is above or equal to 1% inclusively, but below the proportion required by government of the province, autonomous region or municipality directly under the central government, 50% of the required disabled employment fund shall be paid. Where the proportion rate is lower than 1%, 90% of the required amount shall be paid.

Comments from the author

  1. All tax favor policy has stipulated conditions for qualifying to enjoy the policy. Tax payers which do not meet the conditions are not qualified for enjoying the tax favor policies.

For example, IIT favor policy on stock transfer income or stock incentives is only applicable for stocks which satisfy the requirements listed in tax regulations.

For CIT favor policy for small scale and low profit enterprises, only the enterprises which meet the following definition of small scale and low profit enterprises can enjoy the policy:

  • The enterprises have not conducted restricted or prohibited industries according to the state law;
  • Annual taxable income is below 3 million;
  • Total employees is below 300; and
  • Total assets are not in excess of 50 million.

Tax payers shall check the qualification requirements and prepare ready the related supporting documents before filing the tax statement for enjoying the policy with the tax authority so as to avoid tax loss.

  1. For enjoying the preferential policies, at present, no pre-approval from tax authority is necessary. Tax payers can assess and judge by themselves whether they are qualified for enjoying the policies. If tax payers consider that they are qualified for enjoying the policies, they can enjoy it directly in tax filing and payment. Tax authority will supervise the taxation conduct during tax inspection. If tax payers are noted not qualified for the tax favor policy, tax penalty might be charged.
  2. Due to the role of tax favor policy in supporting the economic development strategy of the government, normally an effective period has been set up for most of the preferential policies. Tax payers shall pay attention to the update from tax authority including the effective period and changes of stipulations if any to avoid tax loss.

List of applicable tax regulations

  • The Announcement from State Administration of Taxation on Reduction and Exemption of Value Added Tax for Small Scale Tax Payers(2023 No.1)《国家税务总局关于增值税小规模纳税人减免增值税等政策有关征管事项的公告》（2023年第1号）
  • The Announcement from Ministry of Finance and State Administration of Taxation on Reduction and Exemption of Value Added Tax for Small Scale Tax Payers (2023 No.1) 《财政部 税务总局关于明确增值税小规模纳税人减免增值税等政策的公告》（2023年第1号）
  • The Announcement from Ministry of Finance and State Administration of Taxation on Continuity of Favor Policy on Individual Income Tax (2023 No.2)《财政部 税务总局关于延续实施有关个人所得税优惠政策的公告》（2023年第2号）
  • The Announcement from Ministry of Finance and State Administration of Taxation on Favor Policy of Corporate Income Tax for Small Scale and Low Profit Enterprises and Individual Business (2023 No.6) 《财政部 税务总局关于小微企业和个体工商户所得税优惠政策的公告》（2023年第6号）
  • The Announcement from State Administration of Taxation on Favor Policy of Corporate Income Tax for Small Scale and Low Profit Enterprises (2023 No.6)《国家税务总局关于落实小型微利企业所得税优惠政策征管问题的公告》（2023年第6号）
  • The Announcement from Ministry of Finance and State Administration of Taxation on Further Improvement of Policy for Additional Deduction of R&D Expense Before Tax (2023 No.7)《财政部 税务总局关于进一步完善研发费用税前加计扣除政策的公告》（2023年第7号）
  • The Announcement from Ministry of Finance on the Continuity of Favor Policy of Disable Employment Fund (2023 No.8)《财政部关于延续实施残疾人就业保障金优惠政策的公告》（2023年第8号）