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Tax Administration

Preferential Corporate Income Tax

 

· INSIGHTS

At present, a tax system is in effect to ensure that "preferential treatment is mainly granted to industries, with regional preferences as a complement." Enterprises engaged in agriculture, forestry, animal husbandry, and fishery projects, public infrastructure projects, environmental protection projects, energy conservation projects and water saving projects corporate income tax exemption or reduction; high-tech enterprises are taxed at the reduced rate of 15%; western China enterprises in industries specifically encouraged by the government are taxed at the reduced rate of 15%; small, low-profit enterprises also receive preferential tax treatment. This Guide focuses on the noteworthy preferential tax policies on foreign investment introduced in China in recent years. Enterprises are advised to refer to specific laws and regulations for the preferential tax policies of particular categories.

These preferential tax policies include:

(1)High-tech enterprises enjoy a preferential tax rate of 15%.

(2)Small, low-profit enterprises enjoy a preferential tax rate of 20%. Where the taxable income is less than RMB 1 million and between RMB 1-3 million, the corporate income tax shall be collected at the reduced rates of 25% and 50%, respectively.

(3)Effective through December 31, 2030, enterprises in western China in industries designated by the government for special encouragement shall enjoy a preferential tax rate of 15%.

(4)Starting from the tax year that production/operation income is first generated, enterprises engaged in public infrastructure projects with major support from the government shall enjoy the "three-year exemption and three-year half rate" corporate income tax incentive.

(5) Enterprises engaged in agriculture, forestry, animal husbandry, or fishery projects shall pay corporate income tax at a reduced rate or be exempted from it.

(6)Starting from the tax year that production/operation income is first generated, enterprises engaged in eligible environmental protection or energy/water conservation projects shall enjoy the "three-year exemption and three-year half rate" corporate income tax incentive. Enterprises purchasing specialized equipment for environmental protection, energy or water conservation, or production safety, 10% of the investment in equipment can be deducted from the tax amount payable.

(7)A weighted deduction of 75% of an enterprise’s R&D expenditures shall be applied after the actual enterprise R&D expenditure is taken out in accordance with regulations; where enterprise R&D expenditure generates intangible assets, 175% of the cost of intangible assets shall be amortized.

(8)Corporate income from technology transfer not exceeding RMB 5 million within a tax year shall be exempted from the corporate income tax; that which exceeds RMB 5 million shall be taxed at half of the rate.

(9)Starting from the tax year that production/operation income is first generated, newly founded high-tech enterprises located in any of China's five special economic zones or the Shanghai Pudong New Area shall enjoy a "two-year exemption and three-year half rate" corporate income tax incentive.

(10)Venture capital enterprises making eligible venture capital investments can enjoy deduction for the tax amount payable at a certain percentage of the amount invested.

(11)Income from equity investments, including interest earned from the government bonds and stock dividends of resident enterprises, as well as certain specified income of non-profit organizations, are exempted from the corporate income tax.

(12)Foreign investors reinvesting their profits in China are temporarily exempted from the withholding income tax.

(13) Eligible cutting-edge service enterprises across the nation shall pay the corporate income tax at a reduced rate of 15%.

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