Financial and tax practitioners are tasked with the crucial responsibilities of conducting the People's Republic of China (PRC) statutory audit and filing the statutory annual Corporate Income Tax (CIT). Below, we present a concise overview of the key policies governing the PRC statutory annual CIT filing:
1. Definition of CIT
Enterprises and other organisations that generate income within or from the PRC are designated as CIT payers and are obliged to adhere to the provisions outlined in the CIT Law.
2. Non-taxable income and tax-exempt income
The following types of income are exempt from consideration in the annual CIT filing:
- Fiscal appropriations
- Government-managed funds and administrative and institutional fees returned to Bureau Finance
- Qualified special-purpose financial funds
- Interest earned on government bonds and local government bonds
- Dividends and bonuses deemed eligible between resident enterprises
3. CIT Rate
3.1 Small-scale and thin-profit enterprise:
Enterprises operating within national, non-restricted and prohibited industries, meeting all three of the following conditions simultaneously, may qualify as small-scale and thin-profit enterprises, allowing them to enjoy an effective preferential CIT rate of 5%:
- Annual taxable revenue <= RMB3 million
- Number of employees <= 300
- Total assets <= RMB50 million
| Item | Scenario 1
(profit > 3M) | Scenario 2
(profit <= 3M) |
|---|
| Profit before tax | 3,010,000.00 | 2,500,000.00 |
| Effective CIT Rate | 25% | 5% |
| A - CIT Payable (by adopting the applicable CIT rate) | - | 125,000.00 |
| B - CIT Payable (Assuming if there is no CIT incentive, i.e., 25%) | 752,500.00 | 625,000.00 |
| CIT saving (B-A) | - | 500,000.00 |
3.2 Qualified High and New Technology Enterprises (“HNTE”)Qualified Advanced Technology Service Enterprises (“ATE”), and Qualified Pollution Control Enterprises (“PCE”) are eligible for a preferential CIT rate of 15%.
Furthermore, qualified enterprises operating within special development areas are entitled to a preferential CIT rate of 15%. For instance, enterprises engaged in encouraged industries within Western Region, the Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Zone, or the Demonstration Zone of In-depth Cooperation among Guangdong, Hong Kong, and Macao in Hengqin, Zhuhai, among others.
Additionally, qualified enterprises in key industries, such as the integrated circuit design and software industry, can benefit from a preferential CIT rate of 10%.
4. Deductible expense and corresponding deduction limits
During annual CIT filing, enterprises must carefully consider the deductibility of specific expenses and adhere to the corresponding limitations. These include:
- Employee expenses such as employee welfare fees, labour union fees, employee educational expenses and insurance costs
- Business-related entertainment and advertising/promotion expenses
- Interest expenses and borrowing costs
- Public welfare donations
- Commission fees
- Other relevant expenses
5. Super deductions for R&D expenses
Enterprises across various industries, excluding those listed below, are eligible for a 100% extra deduction on qualified R&D expenses incurred during the year. Industries excluded from this benefit include:
- Tobacco manufacturing
- Accommodation and catering
- Wholesale and retail trade
- Real estate
- Rental and business services
- Entertainment industry
6. Deadline for annual CIT filing
Enterprises are required to complete annual CIT filing within five months after the end of each fiscal year, in accordance with PRC statutory requirements. However, local tax authorities may impose earlier submission to allow time for review and any necessary corrections before the final submission.
How we can help
Our team comprises professional tax experts with extensive knowledge and practical experience in PRC CIT matters. We are fully equipped to assist you with your PRC CIT-related tasks, ensuring compliance and efficiency in your tax obligations.
CHINA UPDATES
Accounting and Taxation
- Decision of the State Taxation Administration on Amendment to the Implementing Rules for the Administrative Measures of the People's Republic of China on Invoices. This notice came into effect on 1 March 2024.
- Clarification of Basic Management Provisions for Electronic Invoices
- Addition of Provisions for Invoice Data Security Management
- Refinement of Criteria for Determining Invoice Violations
- Alignment with Existing Laws and Regulations
- Improvement of Regulations on Invoice Printing, Issuance, and Use
- To support the development of offshore trade in pilot free trade zones, the State Administration of Taxation (“SAT”) and Ministry of Finance (“MOF”) issued a Notice on the Pilot Program of Preferential Policies of Stamp Duty on Offshore Trade in China (Shanghai) Pilot Free Trade Zone and Lin-gang New Area on 6 February 2024. This notice shall come into effect from 1 April 2024 to 31 March 2025.
Trade contracts concluded by enterprises registered in the China (Shanghai) Pilot Free Trade Zone and the Lin-gang Special Area for the purpose of Offshore Trade are exempted from stamp tax.
Offshore Trade, referring to the purchase of goods by a resident enterprise from a non-resident enterprise and subsequent resale of the goods to another non-resident enterprise, and the goods have never actually entered or exited the Customs territory of China.
Human Resources
- On 8 February 2024, the Shanghai Municipal Human Resources and Social Security Bureau issued a notice regarding the extension of the Shanghai human resources service license, aiming to further standardise the extension and issuance of the Human Resources Service License, and ensuring the standardisation and orderly operation of human resources service agencies. The notice includes the following points:
- Standardising the validity period of the "Human Resource Service License" according to the law.
- Clarifying the continuation of the work procedures of the Human Resources Service License.
- Ensuring proper renewal of licenses.
Corporate Governance
- On 23 January 2024, the State Administration of Foreign Exchange Shanghai Branch issued a Circular of the State Administration of Foreign Exchange Shanghai Branch on Carrying out High-Standard Pilot Opening-up for Cross-Border Trade and Investment. The implementation rules in the Circular include:
- Sharing of external debt quotas between parent and subsidiary financing leasing companies.
- Registration exemption of domestic re-investment by foreign-invested enterprises.
- Direct bank registration procedures for qualified non-financial enterprises’ borrowing external debts.
- Direct bank registration procedures for qualified non-financial enterprises’ overseas listing.
Contact Us
Yeo Lee Soon
China Business Advisory, Singapore
YeoLeeSoon@RSMSingapore.sg