The Ministry of Finance ("MOF") and the State Administration of Taxation ("SAT") have recently distributed the Circular on Further Expanding the Coverage of the Preferential Income Tax Policy for Small Low-profit Enterprises (the "Circular").
The Circular expressly states that, during the period from January 1, 2018 to December 31, 2020, the previous CNY500,000 upper limit of the annual taxable income of a small low-profit enterprise is doubled to be CNY1 million, meaning that if the annual taxable income of a small low-profit enterprise is equal to or lower than CNY1 million, its income will be counted into the taxable income at the half-reduced rate, and the enterprise income tax is calculated and paid at the 20% tax rate. According to the Circular, small low-profit enterprises refer to enterprises engaged in industries not restricted or prohibited by the State and meeting certain conditions. For example, in case of an industrial enterprise, it will be regarded as a small low-profit enterprise, if its annual taxable income does not exceed CNY1 million, it employs 100 employees at most, and has the total assets of not more than CNY30 million. Furthermore, the Circular notes that, the Circular on Widening the Coverage of Preferential Income Tax Policies for Small Low-profit Enterprises shall be repealed from January 1, 2018.